Traders pile into a Fed hold as yields hit a 24-year high
A December hike is still priced at 68%, so the October pause looks tactical rather than final.
In one line: The Fed keeps its rate range unchanged in October and saves any rise for December, and a 75% hold price still underrates that.
Ten-year Treasury yields rose as high as 5.34% on 1 Oct, a 24-year high, before easing back, ZeroHedge reported. The New York Times reported the same day that the sell-off was spreading to Europe and that higher yields were pressing on consumer and corporate borrowers. Tekedia wrote on 1 Oct that markets entering October were sharply reassessing the Fed's next move.
Traders have moved hard towards a hold. The no-change contract stands at 75%, up 42 points over the 7 days from 33% on 25 Sep and up 9.0 points in the last 24 hours. It touched a low of 28% on 28 Sep and a high of 77% on 1 Oct. Within the event, a rise of 25 basis points (a quarter of a percentage point) takes 25%, and every cut or larger rise sits at 0%. Kalshi prices a hold at 73% and a 25-point rise at 28%, so two independent books agree within a few points.
The yields and the price seem to clash, but they point the same way. A 5.34% ten-year yield tightens credit without any vote from the Fed, and the Times reports that borrowers already feel it. That gives the committee room to wait a meeting and watch. The December contracts show delay, not retreat: a 25-point rise there trades at 68% and no change at 30%. Traders have moved the rise later, not dropped it. TLT, the long-Treasury fund, rose 1.00% on 1 Oct as yields came off their high, which fits a market that expects less tightening this month.
The Fed leaves the upper bound of its target range unchanged at the October meeting, and the 75% price still underrates that. The best case for the other side is that a 24-year-high yield signals inflation fear the Fed cannot ignore, and it would gain force if committee members began calling for an October rise before the meeting. The call is wrong if the upper bound moves at the October meeting, which the contract settles on 29 Oct. A hold gives borrowers squeezed by the highest yields since 2002 a month without a further rise, though the 68% December price says the reprieve will be short.