Bond Traders Target Dovish Fed Pick as Rick Rieder Favored

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Bond Traders Target Dovish Fed Pick as Rick Rieder Favored.

treasuries & bonds :: 2026-01-28 :: source - bloomberg

By Edward Bolingbroke

(Bloomberg) -- Bond futures traders are ramping up bets on a dovish policy shift at the Federal Reserve as BlackRock Inc.’s chief investment officer Rick Rieder is gaining momentum to succeed Jerome Powell.

In recent days, a wave of flows in the interest rate futures market linked to the Secured Overnight Financing Rate and the fed funds rate, the Fed’s policy benchmark, has been gathering pace just as Rieder’s odds to be the next Fed chair climbed to the top spot in betting markets.

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Monday’s open interest data in both fed funds and SOFR futures showed growing appetite for new trades which stand to benefit from a more aggressive path of interest-rate cuts than currently priced. Notable flows included a record trading volume in the July-August one-month fed funds futures spread and June-December 6-month SOFR spreads.

Treasuries were little changed on Wednesday, with the US central bank expected to hold policy steady later in the session. Focus will be on the press conference — Powell’s first since the Fed was served grand jury subpoenas. It’s bound to include questions about political pressure, central bank independence and what the Fed chief plans to do after his term as chair ends in May.

As a Wall Street veteran, Rieder is seen bringing a market-centric approach to the Fed. In September, he advocated for a more aggressive half-point rate cut than the 25-basis-point increments favored by the Fed, while he’s also argued against the central bank’s forward guidance on future rate moves, known as the dots plot.

“He would be dovish rates and likely press for three cuts this year,” Evercore ISI economists, including Krishna Guha, wrote earlier this week, citing Rieder’s views on productivity and inflation dynamics as well as labor market pressures.

Interest rate swaps are currently pricing in just under two quarter-point reductions for 2026. But in the SOFR options market, there has been a recent influx of positions that stand to benefit from multiple rate cuts, targeting the fed funds rate to drop to as low as 1.5% by the end of the year, well below current interest rate swaps pricing of roughly 3.2%.

Trading in many of these contracts is anonymous, making it difficult to identify the firms involved and the exact beneficiaries of the bets.

Investors view Rieder as leaning more dovish than prior favorite Kevin Warsh, a former Fed governor, whose odds now stand at 29%, according to prediction market platform Polymarket. The BlackRock executive’s chances have climbed to around 47% after his interview with President Donald Trump earlier this month elicited positive reactions.

“He is likely to be modestly more dovish than some of the other choices, though it is unlikely that he would rubber stamp Trump’s views,” said Mohit Kumar, chief strategist for Europe at Jefferies. “His appointment is likely to bring credibility to the Fed chair and ease some market concerns.”

Here’s a rundown of the latest positioning indicators across the rates market:

JPMorgan Survey

In the week to Jan. 26, investor sentiment was unchanged with longs remaining at most elevated since December at 24 percentage points. The net long position remains at 5 percentage points.

SOFR Options

In SOFR options out to the Sep26 tenor, there was a large amount of new risk added in the 96.5625 strike where both Mar26 and Jun26 calls were heavily traded over the past week. There was also a decent amount of new risk added in the strike via Jun26 puts.

Popular flows around the strike have included SFRM6 96.50/96.5625 call spreads, SFRH6 96.4375/96.50/96.5625 call flies and SFRM6 96.5625/96.4375/96.3125 put trees. There has also been a large amount of new risk added via 96.4375 Mar26 calls with recent flows including SFRH6 96.375/96.4375/96.50 call flies and SFRH6 96.375/96.4375 call spreads.

More broadly, the most populated strike is the 96.50 where a large amount of open interest sits in Mar26 calls and Jun26 calls. There has been recent demand for the strike via SFRH6 96.375/96.4375/96.50 call flies and SFRM6 96.50/96.5625 call spreads. The 96.75 strike is also well populated, where open interest increased over the past week with one of the larger flows being a buyer of the SFRU6 96.75/97.00/97.25/97.50 call condors.

Treasury Options Premium

The premium paid to hedge risk in long-end Treasuries last week moved sharply to favor puts into the selloff which saw US 30-year yields peak at 4.945% and cheapest since September. Premium has since moved back closer to neutral as the Treasuries market has stabilized over recent sessions.