The story for the past 12 months clearly has been inflation. A year ago, we debated whether inflation would be transitory or not. You heard about ‘base effects’ caused by lapping depressed prices from early 2020, and once we were past those, inflation would drop.

However, the concern about inflation was clearly elevated versus any time in recent memory. A quick Google trends search shows how the number of searches on the topic increased last year.

Figure 1:

Figure 1
Source: Google

Figure 2: Cumulative Rate Hike Probability to December 2022

Figure 2: Cumulative Rate Hike Probability to December 2022
Source: CME Fed Watch Tool

Example: futures replacement strategy

Figure 3: Eurodollar December 2022 futures contract

Figure 3: Eurodollar December 2022 futures contract
Source: Bloomberg

Figure 4 & 5: Eurodollar December 2022 Vol2Vol and projected P&L

Figure 4 Eurodollar December 2022 Vol2Vol and projected P&L
Source: QuikStrike
Figure 5 Eurodollar December 2022 Vol2Vol and projected P&L
Source: QuikStrike

Example: Tactical bullish trade

Figure 6: 10-Year, 2-Year Yield Curve

Figure 6: 10-Year, 2-Year Yield Curve
Source: Bloomberg

Figure 7: SOFR June 2022-March 2023 futures spread

Figure 7: SOFR June 2022-March 2023 futures spread
Data: Bloomberg

Figure 8: SOFR call spread

Figure 8: SOFR call spread
Source: QuikStrike