(Bloomberg) -- Traders are piling into inexpensive options that hedge against negative interest rates as bets on Federal Reserve hikes are pushed further out into 2023.

Over the past 10 days, demand has emerged for an array of 100.00 call strike options on eurodollar contracts -- which are priced off Libor -- protecting against potential interest-rate cuts. More than 100,000 options have been bought across an array of tenors during that period. The call strike coincides with a Libor rate of zero, compared with Wednesday’s return of 0.1285%.

Just before the Fed meeting, eurodollar futures are pricing in the first rate hike around March 2023 -- from December 2022 at the start of last week. Further out, the path of tightening is seen by traders as shallow, with the next move not expected before 2024.

See more details on the mid-curve structure and what it hedges

Traders seeking out those hedges see potential scope for an even more dovish swing to the front-end pricing of the Fed’s policy path. With the threat of a surge in Covid-19 cases, fueled by the highly transmissible delta variant, the central bank’s June policy statement flagging progress on vaccinations already looks outdated.

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