This is evident in the specific interest rates of futures contracts linked to the Guaranteed Overnight Funding Rate (SOFR), a short-term benchmark influenced by the policy rate.
During January, the December 2023 SOFR contract rate was up to 64 basis points lower than the highest rate forecast for the year, which was then June. On Tuesday, the December rate, which is volatile, is only about 12 basis points lower than the top rate, which fell to around 5.42% in the July-September window.
For some it could be a snap judgment. The June-December SOFR curve appears to have narrowed too much after last month’s changes, Ed Acton and Bill O’Donnell, Citi Strategies, wrote in a note. Traders “may want to take a few ticks off the table to assess whether it is a breach.”
Last week, the market fully priced in a quarter-point rate hike in June, following anticipated moves in March and May. Also, Wall Street economists have been revising their forecasts for a June rise.