Short positions in bonds before the Fed

Before the Fed decision, market players turned to the options market against a possible sell-off in bonds. Market players are protecting themselves against a possible sell-off in American bonds by turning to derivative products before the Fed decision. Short positions taken against American bonds increased against the possibility that the Fed's new economic forecasts will reflect expectations of fewer interest rate hikes. In the options market, it was seen that option purchases were made predicting that the five-year US bond yield, which was at 4.3 percent on Tuesday, will rise to 4.45 percent by Friday. Sit Investment Associates Senior Portfolio Manager Bryce Doty stated that the bond market positioned itself against a hawkish Fed message on Wednesday. Jefferies Senior Economist Tom Simons predicted that the median estimate would imply two interest rate cuts with the benchmark interest rate around 4.88 percent. With the expectation that the Fed would foresee fewer interest rate cuts, the US two-year bond yield rose to 4.75 percent on Monday, reaching its peak of the year. According to Bank of America Strategist Mark Cabana, the Fed’s projections of just two rate cuts could lead to another 10 basis point increase in two-year yields. At the end of December, market players were pricing in six rate cuts in 2024, starting in March. With that expectation falling behind, only three rate cuts are being priced into swap markets this year.