The bond traders adjusted the layout once again. After the release of a series of economic data, the market almost completely ruled out the possibility of the Fed raising interest rates for the rest of the year. Now the options market is betting on hedging the risk that the Fed will switch to cutting interest rates in 2027. Data released last week showed that inflation and consumer demand slowed in July, and market expectations for interest rate hikes at the September 16 policy meeting declined. Since then, the options market has become active. Options traders are starting to establish positions, betting that the interest rate hikes included in the swap market will weaken in the coming months. Some options trades have even begun to hedge against the risk of interest rate cuts as early as mid-next year. “Traders' concerns about interest rate hikes have lessened,” said Jeff Schuh, head of interest rate trading at Constitution Capital, and pointed out that recent positions betting on interest rate hikes have been closed. “We have seen many sellers of put options in September and December abandon their original bets and close their positions.” Schuh said that the expected probability of the market's interest rate hike in September plummeted by half in the past week from 68% two weeks ago, which “fully illustrates the market's views on weak non-agricultural data and CPI data.”

The bond traders adjusted the layout once again. After the release of a series of economic data, the market almost completely ruled out the possibility of the Fed raising interest rates for the rest of the year. Now the options market is betting on hedging the risk that the Fed will switch to cutting interest rates in 2027. Data released last week showed that inflation and consumer demand slowed in July, and market expectations for interest rate hikes at the September 16 policy meeting declined. Since then, the options market has become active. Options traders are starting to establish positions, betting that the interest rate hikes included in the swap market will weaken in the coming months. Some options trades have even begun to hedge against the risk of interest rate cuts as early as mid-next year. “Traders' concerns about interest rate hikes have lessened,” said Jeff Schuh, head of interest rate trading at Constitution Capital, and pointed out that recent positions betting on interest rate hikes have been closed. “We have seen many sellers of put options in September and December abandon their original bets and close their positions.” Schuh said that the expected probability of the market's interest rate hike in September plummeted by half in the past week from 68% two weeks ago, which “fully illustrates the market's views on weak non-agricultural data and CPI data.”