The Federal Reserve hiking cycle that’s expected to get underway next year might be largely done and dusted shortly after the end of 2023 if traders are right.

While eurodollar futures and options are pricing in numerous quarter point increases in 2022 and 2023, they’re pricing in just one after that, underscoring expectations for a relatively short and slight tightening cycle.

The movement is being heavily backed in the futures market, with Tuesday witnessing a large 20,000 block sale in the spread between December 2023 and December 2025 eurodollar contracts. Priced at 28.5 basis points, it’s essentially a wager that will increase in value as rate-hike premiums diminish in 2023.

That trade is far from an outlier. A pre-existing recommendation from Morgan Stanley that investors bet on a steepening of the spread between end 2022 and end 2024 eurodollar contracts has been adjusted to one that calls for steepening between September 2022 and December 2023. In short, it advises bringing forward bets on where rate hikes will peak.

The markets are already pricing in way less that the Fed forecast for rate hikes after 2023. Markets currently match up until 2023 the median course within the so-called dot-plot that charts officials’ individual forecasts. But after that, the market is decisively more dovish that policy makers. And by the end of 2025 the market is pricing in just half (around 1.25%) of the Fed’s 2.50% longer-term forecast.

This article was provided by Bloomberg News.