Traders are now investing under the assumption that interest rates will continue to be cut.
Traders are investing in derivatives that would produce a return if interest rates were to be at zero or below zero. Contracts for these derivatives increased to nearly 1.2 million. The number of contracts betting for low interest rates is at its highest point since 2011.
“People are trading things that imply negative rates are not just possible but reasonably probable,” said Josh Younger, head of U.S. interest-rate derivatives strategy at JPMorgan Chase & Co.
The Federal reserve has cut rates twice in the last quarter. Previous to these rate cuts, the last time that the Fed implemented this monetary policy was during the economic recession. There is a global trend to cut rates, with 16 central banks worldwide cutting rates in the third quarter.
Anxiety has been raised over whether the Fed has the capability to cushion the negative effects of a recession, since it has already lowered rates so much. Anxiety regarding the trade war between the U.S. and China has also many investors worry leading to expectations for a rate cut.
“It’s part of a broader story of increased uncertainty around FOMC policy action,” said Agha Mirza, global head of interest-rate products at CME Group