Mysterious Trader Bets Federal Reserve Will Maintain High Rates Long-Term, Profits Around $10 Million from SOFR Options Trading

Gate News reports that on March 17, a short-term interest rate options trade betting that the Federal Reserve will maintain high interest rates for the long term recently realized profits of approximately $10 million and closed out before this week’s Federal Reserve policy meeting. The trade was established in January of this year, linked to options on the Secured Overnight Financing Rate (SOFR, the U.S. short-term interest rate benchmark), with a core bet that by mid-2028, U.S. interest rates will be higher than the market generally expects at that time.

According to open interest data released by the Chicago Mercantile Exchange (CME), sell-offs of related options occurred last Friday, indicating that the position has been profitably closed. Since such interest rate derivatives are usually traded anonymously, it is currently impossible to confirm the specific trading institutions or individuals involved.

Market analysis suggests that this trade was positioned before the outbreak of conflict in the Middle East. As recent crude oil prices surged to their highest levels since 2022, concerns about inflation have reignited. Traders have begun to lower expectations for Fed rate cuts, pushing SOFR futures down and causing the prices of corresponding put options to rise, turning the position profitable.

Currently, the market expects the Federal Reserve to cut interest rates by only about 25 basis points by the end of this year, well below the at least two rate cuts priced in by the market at the end of February. Additionally, forward interest rate expectations have also increased; for example, the SOFR futures rate expiring in June 2028 has risen by approximately 30 basis points since early March.

This position was closed out before this week’s Federal Reserve rate decision. The market generally expects no change to the policy rate at this meeting, but investors will focus on Fed Chair Powell’s press conference to gauge how the Fed will balance inflationary pressures from rising oil prices with signs of a weakening labor market.