Bond Traders Are Betting Historic Sums on November Federal Reserve Meeting

Futures traders have record sums riding on the outcome of the Federal Reserve’s November policy meeting.

(Bloomberg) — Futures traders have record sums riding on the outcome of the Federal Reserve’s November policy meeting. 

In CME Group Inc.’s federal funds futures market — used to wager on monthly average levels of the interest rate the US central bank sets a target range for — open interest in the November contract soared Wednesday. Defined as the number of contracts in which traders have long or short positions, open interest climbed to nearly 600,000, the most in the market’s three-decade history. The record number represents $25 million at risk per basis-point change in the rate — and much of that is betting on a hike. 

While long and short positions in futures are equal, the recent increases in open interest appear to reflect bets that would benefit from a Fed rate increase on Nov. 1. Traders do that by selling the November contract.

Swap contracts for Fed meeting dates, a different market, price in around 7 basis points of tightening for that date, giving about 30% odds to a quarter-point rate increase. That figure shot higher Tuesday after a stronger-than-anticipated report on job openings.

Wednesday, open interest increased for a seventh straight day by more than 50,000. Flows included a sale of about 47,000 November contracts during a one-minute period shortly after 3:30pm New York time. 

Big Short in Fed Fund Futures Targets a Rate Hike in November

Comments by current and former Fed officials this week appeared to help drive both short and long interest in the November contract. On Tuesday, there was a fresh round of futures sales after Cleveland Fed President Loretta Mester said she’d support a November rate hike if the economy maintains its pace. On Wednesday, Richard Clarida, global economic adviser at Pacific Investment Management Co. and former Fed vice chair, said the Fed could well be done raising rates.    

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