Odd Wagers on Negative Rates Return as Fed-Hike Bets Are Pared
- Interest increases in call strikes over 100 in CME data
- Rate markets globally have been shaken by Omicron risk
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Rogue bets that Federal Reserve policy rates might actually drop below zero are once again being made as the onset of the omicron variant of the coronavirus casts doubt on the economic outlook.
Eurodollar contract open-interest data from CME Group Inc. show a couple of new trades on what remains an unlikely scenario -- a negative fed funds target by September 2022 -- although the market’s base case remains around two quarter-point benchmark hikes next year. But the re-emergence of this kind of hedging underscores the risk to the central bank’s tightening path.