Structural Rhythms in Treasury Yields
Macroeconomic Perspectives, Q3 2025 • Anika Harode
Introduction
Month-end in Treasurys is precisely where ideas meet execution. Bond index extensions, benchmark rebalances, liability driven investment re-hedging, and dealer balance sheet constraints can all tug yields in directions that have little to do with any macroeconomic “view” and everything to do with market flows. These structural forces may not grab headlines, but they often create temporary and meaningful dislocations, providing opportunities for investors who are prepared.
While long term narratives and economic frameworks remain essential, there’s value in recognizing the quieter signals that emerge from the mechanics of markets. As Chinese reformer Deng Xiaoping famously put it, “It doesn’t matter if a cat is black or white, as long as it catches mice.” The same principle applies in investing –sometimes the most reliable opportunities come from seemingly mundane structural patterns, like month-end flows.
This raises a straightforward question: Do these structural flows consistently impact Treasury yields at month-end, and can investors systematically benefit from timing their market entries accordingly? At Fourth Wall, the answer is yes. By targeting entries around 5 days before month-end, these dislocations are incorporated into our bond trading process, reinforcing a macroeconomic fixed income strategy that balances short term execution with longer term views on policy and the yield curve.
Testing the Month-End Rhythm
This strategy involves entering a position in the 10-year yield some number of days before month’s end (Tn) and exiting on the last day of the month (T). Yield changes are calculated as follows: yield (Tn) – yield (T). Since bond prices rise when yields fall, a positive difference in this direction (yield (Tn) – yield (T)) reflects a profitable trade. Thus, for the purposes of this piece, a positive yield change indicates yields decreasing at month-end and generating positive returns.
While earlier drafts of this research examined a full range of entry windows (T10 through T1), this strategy narrows the focus to T5. This particular window was selected on account of internal analysis and a piece of literature, Predictable End-of-Month Treasury Returns1, that identifies T5 as a key point of structural dislocation. The figure below summarizes results of a paired analysis that indicates the T5 entry window has the highest Sharpe ratio (0.51), concluding that it offers the best risk adjusted return.
Figure 1
The methodology is deliberately simple: for each investment horizon (1, 2, 5, 10, and 20 years) we calculate the average change in yields (in bps) following trades initiated at T5. The goal is to test whether these average changes are statistically different from zero.
A one-sample t-test is used to determine whether the mean yield changes above are statistically different from zero. This test weighs not just the average outcome, but the spread of the data. A large t-statistic indicates that the observed average yield change is meaningfully distinct from zero, while a low p-value suggests that such a result is unlikely to arise by chance. Together, these metrics allow us to assess whether month-end entries consistently offer a structural advantage.
What the Numbers Reveal
Looking at shorter time horizons (1 and 2 years), the evidence for a persistent month-end effect is compelling but supported by fewer observations. At the 1-year horizon, for instance, the average yield decline in the T5 window is nearly 7 basis points. Combined with relatively low volatility, this produces a Sharpe ratio of 0.51, pointing to attractive risk adjusted returns over a limited sample.
Despite the high Sharpe, the corresponding t-statistic of 1.77 falls just short of conventional thresholds for significance, with a p-value above 0.10. Why the disconnect? This is less of a contradiction than it is a function of sample size. Only 12 observations exist in the 1-year window, making it difficult to generate strong confidence even when the signal is consistent. The T-Statistic simply requires more data to separate signal from noise. The same pattern holds at the 2-year horizon: yield declines are smaller (~3.5 bps), and the t-statistic drops accordingly. Together, these shorter samples point to promising outcomes that merit attention but require longer histories to fully validate.
But as the analysis extends into the 5, 10, and especially 20-year horizons, the evidence of a month-end effect grows steadily stronger. Despite smaller yield moves (just 2 to 3 basis points on average), t-statistics at the 10- and 20-year horizons consistently exceed 3, with p-values often well below 0.01. In other words, these effects don’t just look good; they hold up under scrutiny. Over longer time frames, the statistical power improves, smoothing out idiosyncrasies and revealing a repeatable structural rhythm in Treasury yields.
Why the Effect Emerges Where It Does
Timing, as always, matters. Early windows (T10 to T8) and very late windows (T1 and T2) fail to consistently deliver statistically meaningful results across any horizon. In early windows, yields are often more volatile due to recent Treasury auctions, unsettled dealer positioning, or end-of-quarter balance sheet noise. Late windows, on the other hand, come too close to the peak of structural flows, and by the time an investor enters, most of the market has already moved.
Mid window entries, particularly around T5, strike a better balance. At this point, auction related volatility has typically passed, and index rebalancing flows and institutional buying are in full swing. These trades are early enough to front run peak flows, but not so early that they get caught in the churn. It’s this sweet spot, visible most clearly at longer horizons, where the structural signal emerges most clearly.
This creates an opportunity zone. Investors who position in this mid-window timeframe effectively harness structural, mechanical flows, not ideological market calls, to achieve consistent yield improvements over the long run.
Conclusion: Results Over Ideology
Recognizing the month-end effect doesn't mean trying to predict macroeconomic twists and turns. Instead, it's about focusing clearly on the market's underlying structure, flows and rebalances, constraints and obligations, and leveraging them for consistent, incremental advantage.
Just as Deng Xiaoping privileged outcomes over ideology, investors who understand and accept structural market rhythms can similarly achieve better outcomes. At Fourth Wall, the principle remains straightforward: prioritizing results. Using short term month-end dynamics isn't about ideological purity or macro forecasting; it's about pragmatically securing better prices and yield entry points for clients, enhancing their positioning over the long term.
In Treasury markets, month-end may seem mundane, mechanical, and unexciting. But like Deng's pragmatic cat, what matters is not how it looks but what it delivers.
1 The “Predictable End-of-Month Treasury Returns” paper by Jonathan Hartley (Harvard University) and Krista Schwarz (University of Pennsylvania) documents persistent yield declines in the final days of each months, attributing the pattern to predictable flow driven demand from passive investors and benchmark rebalancing. Using cross sectional regressions and event studies across the Treasury curve, they find that the effect is most pronounced in longer maturities and cannot be explained by macroeconomic news or seasonal factors. This suggests a structural, rather than informational, source of return.
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