Investors are Moving towards Derivates as federal reserve interest rate hikes come- CME Group
WHAT YOU SHOULD KNOW
- At the end of July, open interest was $272.5 billion, up 8.8 percent over the previous year.
- In over a decade, the European Central Bank lifted rates by 50 basis points in its first monetary tightening cycle.
The CME Group data shows that investors expect federal reserve interest rate hikes. The higher interest rates will make it more expensive to borrow money, so investors are using derivatives to protect themselves from the potential risk.
Open interest is the number of outstanding futures and options contracts that have not yet been settled. At the end of July, open interest was $272.5 billion, up 8.8 percent over the previous year. The huge open interest positions peaked at 1,312 contracts in May but fell to 1,192 in July.
According to the Chicago-based CME, the jump was linked to financial markets bracing for severe monetary tightening as central banks struggled to contain the most significant inflation surge in decades. The increase in open interest in May came ahead of the Fed’s 75 basis point (bps) interest rate hike in June.
The central banks of the United States, Canada, and Europe have lately hiked interest rates. In July, the United States and Canada raised interest rates by 75 and 100 basis points, respectively. In over a decade, the European Central Bank lifted rates by 50 basis points in its first monetary tightening cycle.
As per the statement of CME senior economist,” conditions are ripe for larger-than-expected (rate) increases, which market participants are clearly preparing for.”
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