Traders in futures and options markets are betting that the Federal Reserve will cut interest rates more than expected this year because of the Trump administration's aggressive policy agenda.
Washington's tough talk on tariffs has driven investors towards safe havens such as Treasuries, which will become more attractive if signs of recent economic difficulties continue to mount. On Monday, the rising likelihood of a recession spurred fresh demand for short- and long-term Treasury futures.
Options traders expect recession risks to increase pressure on the Federal Reserve to cut interest rates in the coming months to boost the economy, leading to growing demand for call options on two-year Treasuries that would pay off if the Fed became more aggressive on interest rates.
The premium for these Treasury call options has risen to its highest level since last September, when slowing job growth stoked fears of an economic slowdown in the final months of Biden's presidency.
Traders expect recession risks to force the Federal Reserve to cut interest rates to boost the economy
2025-03-12 05:10:51
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