Trader Behind Huge Fed Funds Wager Bags $14 Million in First Day

© Reuters Trader Behind Huge Fed Funds Wager Bags $14 Million in First Day

(Bloomberg) -- A trader is pocketing big profits for breaking with the pack and placing a sizable bet that the Federal Reserve wont increase the size of its interest-rate hikes.

On Friday, someone purchased October futures with a notional value of $150 billion that are tied to the Feds benchmark overnight rate. The futures price in expected moves at the July and September meetings.

The trade marked a bet that financial markets had shifted too far by pricing in increasing odds that the central bank would raise its key rate by as much as a full percentage point at one of the two meetings.

The wager quickly turned profitable as expectations were dialed back heading into Fridays close of trading. By days end, it was 11.5 ticks higher, amounting to a profit of about $14.4 million from the level at which the wager was placed.

Mammoth Trade in Fed Funds Futures Bets Against Full-Point Hike

Speculation that the Fed would start increasing the size of its rate hikes had surged after Wednesdays consumer price index report showed that inflation jumped to another four-decade high, signaling that price pressures havent abated even as the central bank tightens monetary policy aggressively. By Thursday, futures contracts were pricing in high odds that the Fed would increase the rate by a full percentage point at one of the next two meetings.