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STIR: Positioning Still Feels Long Into Fed, Pricing A Little More Balanced

STIR
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Positioning still feels long in the front end of the U.S. strip ahead of the FOMC decision.

  • That, coupled with market pricing leaning slightly more towards a 50bp cut then a 25bp move (~40bp cut priced into Fed funds futures), leads us to suggest that the greater risk to market positioning lies with a 25bp cut from the Fed later today.
  • The best example of long positioning is probably provided by FFV4 OI, which sits at record levels. Some of the outstanding OI in that contract reflects a wave of fresh longs being set following last week’s dovish Fed articles from the WSJ & FT.
  • The unusually balanced market pricing heading into the decision means that a sizeable reaction is likely, whatever the outcome.
  • A reminder that our macro team leans towards a 50bp move.
  • The SEP will also provide a key input for the post-decision trajectory of markets.
  • We note that the new Dot Plot is likely to reflect uncertainty over the path for rates going forwards, starting with anywhere from 75bp to 125bp of cuts signalled in the 2024 Fed funds median.
  • The end-2025 rate is likely to show an even wider dispersion, but a general consensus that the FOMC would like to return policy to neutral levels fairly quickly.
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Positioning still feels long in the front end of the U.S. strip ahead of the FOMC decision.

  • That, coupled with market pricing leaning slightly more towards a 50bp cut then a 25bp move (~40bp cut priced into Fed funds futures), leads us to suggest that the greater risk to market positioning lies with a 25bp cut from the Fed later today.
  • The best example of long positioning is probably provided by FFV4 OI, which sits at record levels. Some of the outstanding OI in that contract reflects a wave of fresh longs being set following last week’s dovish Fed articles from the WSJ & FT.
  • The unusually balanced market pricing heading into the decision means that a sizeable reaction is likely, whatever the outcome.
  • A reminder that our macro team leans towards a 50bp move.
  • The SEP will also provide a key input for the post-decision trajectory of markets.
  • We note that the new Dot Plot is likely to reflect uncertainty over the path for rates going forwards, starting with anywhere from 75bp to 125bp of cuts signalled in the 2024 Fed funds median.
  • The end-2025 rate is likely to show an even wider dispersion, but a general consensus that the FOMC would like to return policy to neutral levels fairly quickly.