Secured overnight financing rate futures plunge as markets bet September is the most likely timing for the first rate hike

⑴ After the release of the US May nonfarm payroll data, contracts of various maturities for Secured Overnight Financing Rate (SOFR) futures experienced heavy selling, with the red, green, and blue contract packs falling between 6.125 basis points and 8.5 basis points. The white contract pack, which is highly sensitive to Federal Reserve policy, declined by 3.2 basis points.⑵ Based on a 10-day moving average SOFR of 3.61%, the September contract now implies a 68% probability of a 25 basis point rate hike, up from the previous 56%. The December and next March contracts still fully price in one rate hike. The July contract, due to low liquidity, shows a rate hike probability of 40%. Current pricing indicates that the September FOMC meeting remains the most likely timing for the first rate hike.