On the eve of the Jackson Hole meeting, traders bet on aggressive rate cuts by the Federal Reserve

ChainCatcher news, traders are flocking to a specific options bet, believing that the Federal Reserve will significantly cut interest rates by more than 25 basis points next month. Since the beginning of this month, there has been strong demand for positions related to the overnight secured financing rate (SOFR), which is closely tied to policy expectations.

This week, traders have doubled down on this bet, with open contracts targeting a 50 basis point rate cut soaring. Days later, Federal Reserve Chairman Powell will deliver a key speech in Jackson Hole.

Previously, U.S. inflation data exceeded expectations, leading some traders to lower their rate cut forecasts. Although there has been a short-term pullback, traders still seem convinced that a rate cut will occur next month. On Tuesday, U.S. Treasuries ended a three-day sell-off, with yields on government bonds across all maturities retreating. BMO Capital Markets' head of U.S. interest rate strategy, Ian Lyngen, stated, "As the market prepares for Powell's speech, the biggest risk facing U.S. Treasuries is that the Fed chairman chooses to douse the widely expected September rate cut."