By Mark Hulbert
Prices typically peak in the late fall and bottom out in the spring
Federal Reserve Chair Jerome Powell rattled the bond market, but investors have a reason to be optimistic.
Positive year-end seasonality in the U.S. Treasury market may overcome investors’ disappointment with Federal Reserve Chair Jerome Powell’s message that a December rate cut is “not a foregone conclusion.”
Prior to Powell’s news conference last week, the CME’s FedWatch Tool showed the odds of a December rate cut to be about 90%. Those odds are now at 72%.
Yet a bright spot for bond investors right now is that the Treasury market exhibits a fairly consistent seasonal pattern, with prices peaking in the late fall and bottoming in the spring. This pattern is plotted in the chart below.
The chart reflects monthly averages since the early 1970s. That start date was chosen because that was when the U.S. Treasury Department began selling Treasury notes and bonds via open-market auctions. “Before this market-driven price-setting mechanism was in place, there was very little seasonal variation in Treasury note and bond returns,” according to a 2015 study in Critical Finance Review entitled “Seasonal Variation in Treasury Prices.”
The study noted: “However, after auctions were introduced and Treasury issuances began following a regular, predictable schedule… we demonstrate that seasonal variation became a stable feature of the Treasury returns.”
The chart above shows that year-end seasonal strength is particularly evident when focusing on trailing two-month returns. December’s average Treasury return is unexceptional, but in combination with November it is higher than in any other two-month period of the calendar. The difference between Treasurys’ average November-December return and that of the all-month average is significant at the 95% confidence level that statisticians often use when assessing whether a pattern is genuine.
The source of year-end Treasury seasonality
Statistical significance is not in itself a reason to bet on a pattern persisting. Many correlations are highly significant from a statistical perspective but which are nevertheless nonsensical. That’s why, before betting on a pattern, it’s important to first determine if there is a plausible explanation for which it should exist in the first place.
Treasury seasonality initially appeared to fail this additional step. The authors of the 2015 study analyzed, and ultimately rejected, many hypotheses for the why the Treasury market would exhibit this seasonal pattern. Specifically, they studied “macroeconomic seasonalities, seasonal variation in risk, the weather, cross-hedging between equity and Treasury markets, conventional measures of investor sentiment, seasonalities in the Treasury market auction schedule, seasonalities in the Treasury debt supply, [and] seasonalities in the Federal Open Market Committee (FOMC) cycle” – in each case rejecting the hypothesis.
Eventually, however, the researchers found a plausible explanation in “seasonally varying investor risk aversion” Specifically, in the fall investors begin to suffer from seasonal affective disorder (SAD) and that, in turn, influences their willingness to incur more risk.
“If investors experience a dampening of mood and hence an increase in risk aversion in the fall,” the researchers write, “the price of Treasuries should rise, resulting in higher-than-average realized Treasury returns in the fall. Then when investors’ mood rebounds and their risk aversion diminishes in the spring, Treasury prices fall, resulting in lower-than-average realized returns.”
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com
Also read: The Fed is about to start boosting financial markets again. Here’s why.
More: Growth is slowing, and inflation is easing. More Fed rate cuts are the right response.
-Mark Hulbert
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
11-05-25 0750ET
Copyright (c) 2025 Dow Jones & Company, Inc.