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Traders Follow Goldman Call as Cash Piles Into March Rate Hike -Breaking

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© Reuters. The Goldman Call is followed by Traders as the Cash Piles Turn March Rate Hike

(Bloomberg). — At the top-end U.S. rate curve, significant money is being used by traders to position themselves for the strong possibility of the Federal Reserve raising interest rates in March’s monetary policy meeting.

The move follows a number of bank strategists adjusting forecasts and calling for the Fed to raise interest rates four times this year, with the latest being Goldman Sachs’s strategy desk. 

These are the calls of traders, who have put their cash into February Fed Funds futures. This is driving an explosion in open interests. The amount of open positions — or open interest — in the contract now exceeds 200,000 futures as of Friday’s close, just north of $1 trillion in notional value. That’s the most out of all the tenors out to June 2023. This contract will expire February 28, and it’s attracting interest due to the fact that it expires prior to the Federal Reserve rate decision of March 16.    

Selling in the tenor was again evident in Monday’s early New York session, including one trade for a size of 15,588 holding a notional value of $78 billion. After the Dec. 14-15 minutes release, front-end swaps were revalued to 80% at the March meeting. The bulk of last week’s selling occurred Wednesday and Thursday. 

A March rate increase is expected to occur at an 86% probability as of New York City 10am. The February Fed Funds Futures still have downside potential, despite the current selling frenzy. However, March liftoff conviction could grow.  

©2022 Bloomberg L.P.

 

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