August Fed Funds Futures Open Interest Surges 30% as Traders Bet on July Rate Hike With 36% Probability

According to rate swap market data, August Federal Funds futures open interest surged 30% to nearly 590,000 contracts by Monday (June 29), as traders aggressively built short positions betting on a July rate hike. The probability of a 25-basis-point rate increase at next month's policy meeting has jumped to around 36%, driven by recent Fed Chair Kevin Warsh's emphasis on price stability.

The shift in rate expectations has compressed the yield curve. The spread between 2-year and 10-year Treasury yields narrowed approximately 15 basis points since the June meeting, with the 10-year yield at around 4.46% and the 2-year at 4.17%. JPMorgan client surveys show bond net-long positions have climbed to a seven-month high, signaling increased positioning for potential curve flattening.