Treasuries Finish Choppy Trading Day Slightly Lower Ahead Of Warsh Speech

Treasury markets were choppy ahead of Fed Chair Kevin Warsh’s Jackson Hole speech, with the 10-year yield edging up <1 bp to 4.672% as bonds closed slightly lower. Recent U.S. inflation data showed PCE prices rose 0.2% in July (vs 0.1% expected) and core PCE also matched 0.2%, keeping annual PCE growth at 3.7%. FedWatch assigns a 66.1% probability of no rate change next month versus 33.9% for a 25 bp hike, reinforcing cautious positioning pending Warsh’s guidance.

Analysis

CME is less a pure rate-beta short than a volatility franchise: the street is underestimating how much a sticky-inflation, policy-uncertain regime supports derivatives activity even if the Fed ultimately does nothing next month. The immediate move is probably in front-end rate futures and options, but the second-order winner is the exchange layer that monetizes hedging demand across SOFR, Treasury, and equity-rate products; that makes CME more resilient than banks or asset managers to a higher-for-longer narrative.

The risk is that this becomes a one-day event if the Jackson Hole message is merely data-dependent and non-committal. In that case, rate-cut probability can reprice quickly lower, implied vol in front-end rates can compress, and the market may pivot from trading policy uncertainty to trading growth slowdown—bad for activity-sensitive financials and cyclicals, less so for CME. The key falsifier is a sustained drop in the odds of a hike or a clear downshift in inflation momentum over the next 1-2 prints, which would remove the need for elevated hedging.

Contrarianly, the consensus is focused on whether rates go up or stay flat, but CME’s earnings sensitivity is more about the shape of uncertainty than the direction of rates. A mild hawkish lean can be better for volumes than a cleanly dovish outcome, so the trade is not simply long CME on tighter policy; it is long CME when the market must keep paying to hedge policy risk. Over 3-6 months, the structural winner is still the exchange complex, while 6-18 months the bigger risk is a regime shift to stable inflation and lower rate volatility.

Key Decisions for Investors

• Stay modestly long CME into the Jackson Hole event as a volatility beneficiary, but size it as a 1-3 week catalyst trade rather than a structural macro call; upside is in volumes if Warsh keeps policy ambiguous, downside is limited unless the market immediately prices out hike risk.
• Preferred expression: buy a short-dated CME call spread into the speech if implied vol is not already elevated; this isolates event-driven upside from the risk of a post-event vol crush.
• Pair trade: long CME / short XLF or KRE for 1-3 months if the message is even slightly hawkish, since exchange activity should hold up while lending-sensitive financials face margin and duration pressure.
• If Warsh signals patience and the probability of a hike falls back below ~20%, fade the trade and look to take profits on CME within 24-48 hours; the stock’s premium to calmer policy expectations would likely mean-revert quickly.
• Watch the front-end rate vol complex: if SOFR and fed funds option activity do not pick up after the event, that is a warning that the market is moving from policy fear to policy indifference, which removes the main earnings tailwind for CME.