(Bloomberg) -- Bond traders awaiting Wednesday’s Federal Reserve rate decision were forced into a frenzy as news of troubles at a regional New York bank upended their carefully placed bets, leading to a stampede of short-covering.

The shock hit early in the day, when New York Community Bancorp reported a surprise loss and slashed its dividend while boosting its provision for loan losses. The news stoked renewed concern about the strength of the regional-banking sector, prompting a rush by traders to unwind bearish positions in case further turmoil resulted in more aggressive Fed interest-rate cuts than they were anticipating.

Read more: Mass Exodus of SOFR Positions Seen After Bank Worries Reignite

Wednesday’s session saw the most volumes ever traded in most of the current futures contracts, with activity concentrated in the morning. The brunt of the trading was focused in the futures market linked to the Secured Overnight Financing Rate, securities used by traders to bet or hedge on the direction of Fed monetary policy. As traders fled their short wagers, SOFR futures soared.

And that was just the start of the day. Later in the session, another heavy round of futures trading occurred around the time of the central bank’s rate decision. That seemed to cause a further shift in positioning when Fed Chair Jerome Powell appeared to pour cold water on the prospect of a March rate cut. Open interest — the amount of futures contracts held by market participants — fell, consistent with bullish positions being liquidated.

Meanwhile in the options market for SOFR futures, a wave of dovish protection came quickly in demand. New positions were seen in the February options which expire in a couple of weeks, targeting the potential for a Fed rate cut before the next policy announcement on March 20.

The huge volumes of the day included record trading in the March 2024 futures, where roughly 1.35 million traded hands, more than twice the roughly 500,000 15-day moving average. Open interest in those futures fell by more than 100,000 contracts. Trading volumes in the so-called 2nd generic SOFR futures contract were the second-highest ever, falling just short of the amount traded on March 15 last year during the prior bout of regional-banking turmoil.

The market jitters remain, with Treasuries rallying sharply during Thursday’s US session, sending the yield on the benchmark five-year note to the lowest since June. Into the flight-to-quality bid, regional bank stocks have continued to underperform. New York Community Bancorp slumped for a second day, and the KBW Regional Banking Index also fell.

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