(Bloomberg) -- Bond traders have capitulated to the Federal Reserve, abandoning hopes that it would slash interest rates aggressively this year.

In the options market on Friday, the speculation shifted even further: A long-shot bet was placed on the Fed tightening monetary policy even more.

The structure known as a put-condor, would deliver a maximum profit if the central bank’s overnight rate is a band of 5.625% to 5.875% before the contracts expire in December. The rate is at 5.33% now.

The premium paid on the wager is just $750,000, a small amount for a position of approximately 30,000 options linked to the Secured Overnight Financing Rate. So it could be a big institution or investor just protecting against an outside risk — or even the adjustment of an already existing hedge.

But either way it’s another signal of the anxiety that’s raced through the US bond market since higher-than-expected inflation readings upended expectations about the Fed. While it hasn’t raised rates since July and the market is still banking on about three quarter-point cuts this year, there’s been some speculation that even that may be overly optimistic. 

The December 2024 SOFR options expire a week before the Dec. 18 central bank policy announcement. So the maximum profit would come if the Fed raised its benchmark once or twice more by then. 

It’s not the only recent trade pushing back against the consensus view. In the Treasury futures market over the past two days, there was a series of block trades betting against a steepening of the yield curve. Such a steepening would likely occur if the Fed started pushing down short-term rates. The yield curve is currently inverted, with longer-rates holding below short-term ones. 

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