Traders expect recession risks to force the Fed to cut rates to boost economy

traders in the futures and options markets are betting that the Federal Reserve's interest rate cuts this year will exceed expectations due to the Trump administration's aggressive policy agenda.

Washington's tough talk on tariff issues has pushed investors towards safe-haven assets like U.S. Treasuries, and if signs of recent economic difficulties continue to increase, U.S. Treasuries will become more attractive. On Monday, the rising possibility of an economic recession stimulated new demand for short-term and long-term U.S. Treasury futures.

Options traders expect that the risk of a recession will increase pressure on the Federal Reserve, forcing it to boost the economy through interest rate cuts in the coming months. This has led to a continuous increase in demand for call options on two-year U.S. Treasuries, and if the Federal Reserve becomes more aggressive on interest rate issues, these options will pay off.

The premiums on these call options on U.S. Treasuries have risen to their highest level since September last year, when concerns about economic slowdown were raised as job growth slowed down during the last few months of Biden's presidency.