Betting Against A June Rate Hike? Something’s Going On

We noted yesterday that the recent trend of increased volumes into Eurodollar future out-months was ‘odd’…
But the sudden surge in interest in Eurodollar calls (vs puts) suggests more than just a few prop bets are being placed on the fact that The Fed does not hike rates in June.
As Bloomberg notes, preliminary futures open interest data for Wednesday shows steep increases in several Jun17 eurodollar call strikes, consistent with view that Fed won’t hike in June amid tightening FRA/OIS spread. However, these options bets have largely gone unnoticed as futures-market-implied odds (which the majority of investors are shown) of a June hike have been steady at around 80% for a week.
A second consecutive drop in 3-month dollar Libor setting Wednesday prompted a flurry of dovish Fed bets and waves of buying across Jun17 eurodollar futures.

This post was published at Zero Hedge on May 11, 2017.