US bond market position update: Bond traders bet that the Federal Reserve's interest rate cuts will last until 2027

Traders in the U.S. futures and options markets are betting heavily that the Federal Reserve will continue to cut interest rates into next year, rather than shift to rate hikes as previously expected. The futures spread linked to the Secured Overnight Financing Rate (SOFR) has shown a deep inversion, indicating that the market is pricing in a more prolonged period of monetary easing. The debate over job losses caused by artificial intelligence (AI) has shifted market expectations.

On February 24, Federal Reserve Governor Lisa Cook warned that the Fed may not be able to effectively combat the rising unemployment rate triggered by the widespread adoption of AI. The market believes that, aside from data center construction and energy demand, AI essentially has a deflationary effect, which has led to a rebound in long-term U.S. Treasuries