In less than half a year, SOFR futures trading volume has broken records again.
According to Bloomberg, on Wednesday, a large transaction involving 118,000 contracts was seen in the U.S. short-term interest rate market, surpassing the historical record of 75,000 transactions on April this year, setting a new high.
The Chicago Mercantile Exchange (CME) also confirmed that, &#34;This is the largest transaction of this product to date.&#34;
This large transaction is linked to the Secured Overnight Financing Rate (SOFR), and the performance of this rate is closely related to the recent path of the Federal Reserve's monetary policy. Some analysts point out that this transaction may be a bet that the Fed's easing this year will be less than currently expected, or investors believe that the trading price of this contract has reached a near-term high and choose to take profits and close out long positions.
According to swap traders' speculation, the Federal Reserve is expected to cut rates by an additional 75 basis points in 2024, higher than the policymakers' announced target of an additional 50 basis points cut.
It is worth noting that shortly after this large transaction was completed, the SOFR-based price for December 2024 expiration quickly dropped, indicating that this transaction may have been initiated by the seller. Meanwhile, the two-year U.S. Treasury yield, which has been hovering near its low point in 2022, quickly reversed and rose to an intraday high.
As of now, the U.S. two-year Treasury yield stands at 3.569%.
In early September, there was a significant amount of buying interest in the market, with prices about 20 basis points lower than on Wednesday. Specifically, the scale of this transaction is equivalent to &#34;a risk weight of about $3 million for every one basis point change&#34;. If the trading price rises by 20 basis points, it would be equivalent to a profit of $60 million.
Furthermore, preliminary open interest contract data released by CME during the early Asian trading session showed a slight increase in the price of this contract. Analysts believe that this may signify a new position for traders, although the increase is not significant

Some analysis suggests that this transaction may be a bet that the Fed's easing this year will be less than currently expected

- SOFR futures trading volume has set a new record, with a recent large transaction involving 118,000 contracts surpassing the previous high of 75,000 in April.  
- This transaction is linked to the secured overnight financing rate (SOFR) and reflects expectations regarding the Federal Reserve's monetary policy, with speculation that rate cuts may be more significant than previously announced.  
- Following the transaction, the SOFR basis price for December 2024 dropped, indicating it may have been initiated by sellers, while the two-year U.S. Treasury yield rose to 3.569%.

A large block trade appeared in the US short-term interest rate market, with the scale setting a record in the history of SOFR futures