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U.S. debt investment heats up as the market bets on a surprise rate cut by the Fed in September.
On August 13, 【区块律动】 investors have been continuously pouring into swap contracts, options, and directly going long on U.S. Treasuries for weeks, betting that a slowdown in inflation will allow the Fed to lower borrowing costs in the coming months. This view received initial validation on Tuesday: following the release of July inflation data, short-term U.S. Treasury yields fell, while swap contract traders raised the probability of a rate cut in September to 90%.
More notably, the market's bets on the Fed cutting interest rates by more than 25 basis points in September are also heating up. Traders added about $2 million in premiums to positions related to the Secured Overnight Financing Rate (SOFR) on that day, which will profit from an unexpected rate cut.
"Today's (Tuesday) inflation data, while slightly stronger than in recent months, is far below the level of concern for many," said Rick Rieder, Chief Investment Officer of Global Fixed Income at BlackRock, in a research report. "Therefore, we expect the Fed to initiate rate cuts in September, and there is even a reasonable basis for a 50 basis point cut."
In addition, the Goldman Sachs trading and research team previously stated that the market has underestimated the Fed's likelihood of lowering interest rates by 50 basis points in September.