Bond Traders Cling to Negative-Rate Bets Despite Fed Pushback
- Futures hedges against negative fed funds rate in 2021 persist
- Eurodollar options show bets on Fed rate of -0.5% by mid-2021
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Rates traders are stubbornly holding onto hedges against the risk that the Federal Reserve will drop borrowing costs below zero next year, even as officials signal they’re not headed down that path.
Futures started pricing in the possibility last week of the Fed cutting its target rate below zero as soon as December, with the positioning at least in part because of accounting technicalities. The market has since scaled back some of those wagers. But it’s still reflecting the risk of a negative rate in the second quarter of next year, and eurodollar options trades have emerged that target a Fed rate of minus 0.5% by mid-2021.