Hedging July rate hike risks! Traders flock to U.S. Treasury futures, trading volume surges to a record high.

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The new Fed Chairman Warsh sends out strong hawkish signals, causing dramatic turmoil in the bond market. Traders swiftly reprice the rate hike path, and US Treasury futures trading volume hits a historic record.

According to the latest data released by the Chicago Mercantile Exchange (CME) on Thursday, over 500,000 contracts changed hands in a single day, about four times the 20-day average and setting a historic record. Traders flooded into positions betting that the Fed will raise rates at its next meeting in July. Meanwhile, the chance of a July rate hike jumped from near zero to about 50%, marking a rapid reversal that drew widespread attention.

This wave of trading frenzy directly reflects the market's reassessment of monetary policy direction. Christophe Boucher, Chief Investment Officer of ABN AMRO Investment Solutions, said, "Warsh barely mentioned employment but placed price stability at the core of his narrative. His term signals the Fed will focus more sharply on inflation."

The Treasury market also digested this—on Thursday, the 10-year US Treasury yield dropped up to 4 basis points to 4.45%, partly recovering losses from the Fed's decision on Wednesday.

Warsh’s Debut Sends Hawkish Signal, Rate Hike Expectations Surge

On Wednesday, Warsh officially appeared as Fed Chairman and delivered a notably hawkish speech, emphasizing price stability as his top priority and his commitment to returning inflation to the 2% target. This stance quickly reshaped market expectations for future policy paths.

Previously, swap market pricing showed nearly zero probability for a July rate hike. After Warsh’s remarks, that probability surged to about 50%, akin to a “coin toss” scenario. The market thus shifted from almost fully excluding the possibility of a rate hike to holding highly uncertain attitudes toward the outcome of the July 28-29 meeting.

August Fed Funds Futures Become a Core Battleground

CME data shows that since Wednesday, August Fed Funds futures saw about 67,000 new open contracts, accounting for about 15% of the total open interest for that maturity—a significant single-day increase.

Because August Fed Funds futures mature ahead of the policy meeting on September 16, their activity directly reflects traders’ bets that the Fed could raise rates as soon as July. Participants include hedge funds and asset management firms, using these positions both to hedge interest rate risk and for directional policy bets. As such trades are usually conducted anonymously, outsiders can hardly track the exact institutions or the ultimate beneficiaries of the derivatives.

Notably, total open interest in Fed Funds futures is currently about 1.8 million contracts, still below the one-year average of 2.2 million contracts. CFTC data shows that the overall market position is not yet saturated.

Meanwhile, the highly policy-sensitive SOFR (Secured Overnight Financing Rate) futures market saw simultaneous directional reversal—previous bullish positions betting on rate cuts are being rapidly closed out. Data show that open interest in June 2026 SOFR futures dropped about 90,000 contracts in a single day, indicating the systematic unwinding of previously prevalent dovish rate-cut bets in the market.

This movement echoes the piling up of short positions in August Fed Funds futures, together sketching an overall shift in market sentiment: traders are moving from pricing in rate cuts to pricing in rate hikes.

Institutional Assessment: July Still Holds Uncertainty, Risks Tilt Toward Early Action

Major institutions’ outlooks on the rate hike path are evolving rapidly. BNP Paribas maintains its baseline forecast—the rate hike cycle will begin in December, but at the same time clearly points out that risks are tilting toward earlier action.

"Policymakers’ stance appears to be shifting rapidly. We highlight an increasing risk of earlier action; every meeting—including July—is now in play," BNP Paribas economists James Egelhof and Guneet Dhingra wrote in a report.

This wording means that the market’s previous consensus for rate cuts within the year has essentially collapsed, and investors need to reassess risk exposure across the entire yield curve.

Risk Warning & DisclaimerThe market entails risk; investment requires caution. This article does not constitute personal investment advice and does not consider individual users’ unique investment goals, financial situations, or needs. Users should determine if any opinions, views, or conclusions in this article suit their specific circumstances. Invest accordingly at your own risk. ```