Interest rate futures trading "four times unusual"! Traders are betting that the Federal Reserve will raise interest rates next month?

Federal Reserve Chairman Kevin Wash's hawkish comments on inflation on Wednesday caused a strong reaction in financial markets, with traders predicting that the Fed may start raising interest rates next month at the earliest... According to the latest data released by the Chicago Mercantile Exchange (CME) on Thursday, as bond traders vied to short sell, betting that the Fed would raise rates at the next meeting, the trading volume of August federal funds rate futures surged. Over 500,000 contracts changed hands on Wednesday, with trading volume skyrocketing to about four times the 20-day average. This wave of trading frenzy followed Kevin Wash's policy debut as Federal Reserve Chairman. "Wash rarely mentioned employment issues in his speech, but instead placed greater emphasis on the goal of price stability," said Christophe Boucher, Chief Investment Officer at ABN AMRO Investment Solutions. "The start of his term indicates that the Fed will pay more attention to inflation." Wash made hawkish remarks on Wednesday, emphasizing his determination to bring the U.S. inflation rate back to the Fed's 2% target. His comments prompted bond futures traders to shift their bets towards a rate hike as early as next month. Data released by CME on Thursday showed a large number of new positions in August federal funds futures contracts - open interest surged by 67,000, accounting for about 15% of the total open interest for that term. Since the August federal funds futures contract will expire before the policy meeting on September 16, the unusually active trading in this contract highlights traders aggressively establishing new short positions in anticipation of profit from a possible rate hike by the Fed at the next policy meeting on July 28-29. Such contracts are widely used by hedge funds and asset management companies to hedge interest rate risks or speculate on the direction of monetary policy. As trading in this market is mostly done anonymously, it is difficult for outsiders to identify the specific participating institutions and the ultimate beneficiaries of derivative transactions. Data from the Commodity Futures Trading Commission (CFTC) shows that the total open interest in federal funds futures contracts is currently 1.8 million, lower than the 2.2 million average over the past year. Meanwhile, trading volume in the Secured Overnight Financing Rate (SOFR) futures market, highly correlated with Fed policy, indicates that bullish positions betting on rate cuts are being liquidated. Open interest in the June 2026 contract tied to SOFR decreased by 90,000. Prior to Wednesday's Fed interest rate meeting, pricing in the swap market suggested a close to zero probability of a rate hike by the Fed in July. However, now, the probability of a 25 basis point rate hike six weeks later (at the July meeting) has reached about 40%. BNP Paribas said its baseline forecast is still for rate hikes to begin in December, but market risks are increasingly pointing to earlier rate hikes - possibly as early as July. "Policymakers' views seem to be changing rapidly, and we emphasize that the risk of rate hikes is leaning towards earlier, and action could be taken at every meeting (including in July)," wrote James Egelhof and Guneet Dhingra of BNP Paribas in a report. This article is reprinted from Cailianshe, author Xiao Xiang; GMTEight Editor: Wen Wen.