On April 26, bond traders were no longer fully betting that the Fed would raise interest rates by 25 basis points, as U.S. regional bank stocks slumped again, sending U.S. Treasury prices soaring and short-term market rates falling sharply.
The June Fed interest rate swap contracts currently price in the central bank’s benchmark rate at just 20 basis points above the current effective fed funds rate, implying a roughly 80% chance of a rate hike at one of the next two FOMC meetings.
Earlier this week, traders saw the Fed raising interest rates in May as a near certainty, with further hikes in June likely.
In addition to sharply reducing the chances of a rate hike, the swaps also showed that bets on a Fed cut after rates peaked increased, with the fed funds rate projected to be around 4.3% by the end of the year.