Enormous bets made by the big four banks on the Reserve Bank of Australia cutting the cash rate is distorting pricing of interest rate contracts, pushing the market odds of monetary easing up by more than 10 per cent.
The trading activity is aimed at protecting the banks from short-term losses that arise from lower interest rates and has lured hedge funds seeking an outsized pay-off by taking the other side of the trade.
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Jonathan Shapiro writes about banking and finance, specialising in hedge funds, corporate debt, private equity and investment banking. He is based in Sydney. Connect with Jonathan on Twitter. Email Jonathan at jonathan.shapiro@afr.com
Joanne Tran is a markets reporter for The Australian Financial Review in the Sydney newsroom. Connect with Joanne on Twitter. Email Joanne at jo.tran@afr.com
