Demand Emerges in SOFR Options Market for Bets on Fed Rate Cuts in December 2026 and March 2027

On Monday (the day after the release of the U.S. nonfarm payrolls report), at least two notable bets appeared in SOFR options trading flows, wagering that expectations for Federal Reserve rate cuts are being priced into futures contracts expiring in December 2026 and March 2027.

In options expiring in December 2026, 20,000 lots of the SFRZ6 96.50/97.00 call spread were bought at a price of 1 point; the lower strike price corresponds to an interest rate of 3.50%. The effective federal funds rate has been 3.63% on most trading days this year, while the rate implied by the current price of the December expiry futures contract is 4.005%. In options expiring in March 2027, 7,000 lots of the SFRH7 98.50 call were bought at a price of 1.25 points, corresponding to an interest rate of 1.5%, whereas the current futures-implied rate is 4.10%. (Bloomberg)