As Bloomberg's Edward Bolingbroke observes, after months of consensus trades that the Fed's easing cycle will end in 2026, traders in US futures and options markets are suddenly piling on bets that the Fed will continue cutting rates well into next year instead of raising them.  

As shown below, the key spread linked to the SOFR (the Secured Overnight Financing Rate) which track expected Fed policy, have becoming deeply inverted in the past week, a sign that traders are starting to price a more prolonged easing cycle. The 12-month December 2026 to 2027 SOFR spread dropped into negative on Friday with the inversion deepening on Tuesday to minus 8 basis points, in a sign that investors have flipped from pricing hikes in 2027 to pricing cuts.

In the SOFR options market a similar dovish theme is observed for trades that are hedging (or encouraging, depending on how one views the role of options) the prospect of multiple rate cuts this year. Those trades picked-up again on Tuesday with one position that's looking to hedge for the policy rate falling to as low as 2% by the end of the year growing in size.