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Traders Are Pricing Risk of First Half-Point Fed Hike Since 2000

  • Eurodollars slide as Fed hike premium ramps-up in front-end
  • In options, traders hedge potential 50bp hike at March meeting
The Marriner S. Eccles Federal Reserve building in Washington, D.C.
The Marriner S. Eccles Federal Reserve building in Washington, D.C.Photographer: Samuel Corum/Bloomberg
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Money markets are reflecting increased speculation that the Federal Reserve might opt for its first super-sized boost to borrowing costs in more than two decades.

While a quarter-point increase is still the most likely scenario, swap markets are now pricing in more than 25 basis points of tightening by the end of March. With no move anticipated at this month’s meeting, that suggests traders are at least contemplating the possibility of a 50-basis-point hike in March. The Fed hasn’t tightened that much in one shot since May 2000, when its tightening cycle was already well underway.