If it were not for the rate-cutting camp, it would not even be considered. Interest rate traders are targeting the dovish turn of the Federal Reserve in the Powell era.

After US President Donald Trump nominated Kevin Wash as the chairman of the Federal Reserve, short-term interest rate investors have been adopting hedging strategies to guard against the risk of policy easing this year potentially exceeding the market's current expectations. Since Trump announced the nomination on Friday, the flow of options funds linked to overnight repo rates shows that the market is betting on Wash to steer policy towards a more dovish direction after taking office before the June Fed meeting. The nomination still needs to be confirmed by the Senate. Swaps traders expect the next 25 basis point rate cut to occur in July, and lean towards another cut before the end of the year. However, data from the CME Group shows that among the newly added SOFR option positions on Friday, there were bets on two rate cuts before the end of September. Hedging demand further emerged during Monday's trading session to guard against more dovish expectations being priced in for the third quarter.