Forward markets for overnight index swaps, whose rates show what traders expect the federal-funds effective rate will average over the life of the contract, signal a quarter percentage-point advance around February or March of 2015, according to data compiled by Bloomberg as of Feb. 5. In December, these traders were pricing in a rate increase about June 2015.
“There is no doubt that when the Fed pulls back you will see a big shoot upward in Treasury yields,” said Karl Haeling, head of strategic-debt distribution in New York at Landesbank Baden-Wuerttemberg, one of Germany’s largest banks. “There are a lot of people who think the only reason rates are here is because the Fed put them here. Nobody wants to be the last man standing.”