Oct. 27 at 7:09 PM
CME reports a massive block trade last Thursday involving 40,000 Nov SOFR futures contracts. The trade is a bet that SOFR will avg less than 9bps above the expected federal funds rate in Nov. Each basis-point move could result in a gain or loss of roughly
$2M
SOFR, currently at 4.24%, is the overnight rate for repo loans backed by Treasuries. The fed funds rate, now at 4.11%, reflects unsecured overnight lending b/n banks. The narrow spread b/n the 2 rates is central to the trade’s strategy.
This trade marks a shift from recent trends & signals rising expectations that the Federal Reserve will announce the end of quantitative tightening (QT) after Wed’s policy meeting. On Oct 14, Fed Chair Powell indicated the Fed is prepared to conclude QT, citing tighter liquidity conditions & elevated repo rates.
Ending QT may lead to more liquidity in the system & lower repo rates.
$UUP $TLT $SHY $GLD -
$SPY