A big fed-funds futures bet placed just before the release of what turned out to be a blowout U.S. January jobs report may have netted a trader a profit north of $10 million, Bloomberg reported Friday.
The trader sold the January 2024 fed-funds futures contract
the report said, with the trade completed through a block sale of 13,996 contracts. That carried an approximate risk of $580,000 of profit or loss per each basis point move in the contract.
The trade was placed around 8:15 a.m. Eastern, Bloomberg said, citing traders familiar with the flow, with the contract priced at 95.59, implying expectations for an average fed-funds rate of 4.41% next January. The contract fell to a low around 95.37 in afternoon trade, implying a fed funds rate of 4.63%.
The short futures position appeared to remain in place Friday afternoon, the report said.
Fed-funds futures sold off after the much stronger-than-expected January jobs report and a sharp rebound in the Institute for Supply Management’s January service sector activity index.
Fed-funds futures on Friday afternoon reflected a 99.6% probability the Fed would raise the rate by 25 basis points to a range of 4.75% to 5% at the conclusion of its next policy meeting on March 22, up from an 82.7% probability on Thursday, according to the CME FedWatch tool.
For May, investors now see a 61.3% chance of another quarter-point rise to 5% to 5.25%, the level which the Fed has signaled is its expectation for a peak. On Thursday, investors saw just a 30% chance of a quarter-point rise in May.
The Dow Jones Industrial Average
fell 127.93 points, or 0.4%, on Friday, while the S&P 500
slumped 1% and the Nasdaq Composite
shed 1.6%. The Dow fell 0.2% for the week, while the S&P 500 rose 1.6% and the Nasdaq gained 3.3%.