A recently released US inflation report has sparked hopes among investors that the Federal Reserve will soon lower interest rates. Traders who have been betting on this event have seen their wagers gain steam, with some even predicting a larger-than-expected reduction in borrowing costs. The July inflation data showed subdued inflation, leading to a decline in shorter-term Treasury yields and an increase in the chances of a September rate cut to 90%. This trend has encouraged investors to pile into various financial instruments, including swaps, options, and outright Treasury longs, as they seek to profit from what they believe will be lower borrowing costs in the coming months.
Source: https://www.bloomberg.com/news/articles/2025-08-12/bets-on-outsize-fed-cut-gain-steam-as-inflation-data-backs-doves