As the USD STIR market continues to experience a tumultuous period, hedge funds are starting to re-engage in spreads and fly trades that became dislocated during the recent sell-off. While outright positioning remains relatively muted, there is a growing bias towards receiving these trades, as investors believe that any further sell-off would require clearer support from Fed speakers and that the bar for additional hikes remains high for now.

In the SOFR market, there is a growing sense of nervousness around elevated basis levels. Repo trading has been rich into month-end, and expectations for June are looking less constructive. However, positioning remains patient, with participants waiting for further clarity from upcoming SOFR prints alongside a view that softer prints could drive improved demand further out the curve.

The recent push by Waller for a near-term hold has contributed to a sharper selloff in the market, leading some investors to reassess their positions and look for opportunities to buy. This increased activity has led to a narrowing of spreads and a flight to quality, as investors seek safe-haven assets amidst the uncertainty.

Despite the growing nervousness around the SOFR market, positioning remains cautious, with investors waiting for further clarity on interest rates before making any significant moves. The recent volatility in the USD STIR market has highlighted the importance of keeping a close eye on central bank communications and their impact on market sentiment.