Options Traders Pile Into Hawkish Fed Wagers Eyeing 5% Peak Rate
- Eurodollar and SOFR volumes mount after latest inflation data
- Market-implied peak fed funds rate has risen to 4.5% in March
The Marriner S. Eccles Federal Reserve building in Washington, D.C.
Photographer: Stefani Reynolds/BloombergThis article is for subscribers only.
This week’s hawkish repricing of expectations for the Federal Reserve’s policy rate path has been spearheaded by a handful of wagers that the peak will be around 5%, and possibly higher.
Since Tuesday -- when August inflation data was full of lofty surprises -- volumes in eurodollar and SOFR interest-rate options have been running at 1.5 to 2 times recent average levels. In aggregate, they’ve priced in a higher peak for the policy rate of 4.5% in March. However several notable trades appear to anticipate a peak in the range of 4.75% to 5.25% -- rates last seen in 2007.