Concerns over Trump's tariffs have eased, and expectations for a Federal Reserve interest rate cut have cooled

Zhitong Finance APP learned that as U.S. President Donald Trump has softened his stance on tariffs, options and futures traders are betting that the Federal Reserve will not need to make significant interest rate cuts to combat an economic downturn.

Traders across many asset classes are reacting to signals from Trump that the new round of tariffs starting on April 2 may be more targeted than expected. Given that the tariffs are expected to weigh on economic growth and force the Federal Reserve to take action to boost the economy, any easing of tariffs should alleviate the pressure on the Fed to cut rates next year.

Swap market reduces bets on Fed rate cuts

This shift is particularly evident in the secured overnight financing rate options market, which is closely tied to the federal funds rate. New positions were established on Monday and Tuesday, with premiums exceeding $10 million. These positions will benefit if the Fed takes no action this year, and will perform even better if the Fed's next move is a rate hike rather than a cut.

In the futures market linked to the federal funds rate, investors expect the Fed to take a tougher stance and reduce the number of rate cuts. Short positions have been increasing this week, and these positions will benefit if rates do not decline.

As expectations for rate cuts cool, traders are also becoming increasingly bearish on U.S. Treasuries. A client survey released by JP Morgan on Tuesday showed that net long positions in the U.S. Treasury market are at their lowest level in five weeks, with direct long positions declining for the third consecutive week.

JP Morgan client survey shows net long positions in U.S. Treasuries drop to lowest level in five weeks