Traders hedge against multiple Fed rate cuts through mid-2026 with SOFR options
2025-12-04 18:17:31
The recent theme continued in the SOFR options market on December 4: Traders are watching multiple structured trades in the first two quarters of next year to hedge against the possibility of multiple, or even (single), rate cuts by the Federal Reserve of 50 basis points. Fed-pegged overnight index swaps (Fed-dated OIS) currently price the effective interest rate for next June's meeting at about 3.30%, which is about 60 basis points lower than the Fed's current effective rate. The theme that has continued over the past few trading days has been buying upside structures in January, March, and June SOFR options, designed to hedge against more interest rate cut premiums than the swap market is currently pricing in.
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