NEW YORK May 8 Speculators abandoned their bets
on rising U.S. interest rates in the futures market just days
before the Federal Reserve's decision this month to leave rates
unchanged and the release of an upbeat April payrolls report.
Their exit from bearish rate bets also came in advance of
the French presidential run-off on Sunday between anti-European
Union candidate Marine Le Pen and front-runner centrist Emmanuel
Data from the Commodity Futures Trading Commission released
late on Friday showed the margin of speculators' bearish bets on
federal funds futures above their bullish bets on them tumbled
to 37,386 contracts on May 2 from a week earlier.
The collapse in "net shorts," which totaled 176,870
contracts, was the largest such decline for fed funds futures
going back to the late 1980s, according to Reuters data.
The dramatic shift stemmed from speculators including hedge
funds and futures-focused funds to lock in profits on their
bearish bets on further Fed rate hikes, analysts said.
"With these major events on the horizon, people were
covering their short positions," Greg Adamsick, director of
global futures and options at RCM Alternatives in Chicago, said
Speculators' net shorts in fed funds had been hovering close
to record highs.
The move by speculators coincided with a record drop in open
interest on fed funds contracts, whose prices reflect traders'
expectations of the level of interbank borrowing cost that the
Total fed funds open interest slumped to 1.274 million
contracts on May 2, down 462,292 from a week earlier.
Analysts also attributed the drop in open interest partly on
the expiration of the April fed funds contract on April 28.
There are signs that speculators are rebuilding their
bearish rates bets as open interest in fed funds has rebounded
with falling fed funds prices since last Tuesday, analysts said.
The U.S. central bank hinted after its two-day policy
meeting last week that it was open to raising rates in the
coming months, downplaying weak U.S. economic growth in the
A solid payrolls report that showed the U.S. jobless rate
hitting a near 10-year low in April provided another reason to
jump back on bearish rates bets, analysts said.
Finally, Macron's convincing victory over Le Pen further
assuaged anxiety that a key member of the EU and the euro would
stay in the regional economic bloc and single currency, they
(Reporting by Richard Leong; Editing by Paul Simao)