Despite cooling expectations for a Fed rate cut in December, historical data suggests US Treasuries may strengthen toward year-end due to seasonal patterns. This trend, traceable to the 1970s, shows investors' risk appetite typically declines in autumn, boosting demand for safe-haven assets like Treasuries and driving prices to peak in late fall. Research indicates this "seasonal sentiment"-driven pattern holds statistical significance and could temporarily offset market disappointment over monetary policy.

The potential year-end rally in Treasuries appears less tied to Fed policy expectations and more to a historical seasonal pattern—falling risk appetite in autumn typically lifts demand for defensive assets. After Fed Chair Powell stated last week that a December rate cut is "not guaranteed," market expectations dropped sharply. CME FedWatch now shows just a 72% probability for a December cut, down from nearly 90% pre-Powell.

However, bond investors currently benefit from Treasuries' remarkably stable seasonal pattern—peaking in late fall and bottoming in spring—which may counterbalance Fed policy disappointment.

This seasonal effect emerged only after the 1970s when the US Treasury began regular bond auctions. A 2015 Critical Finance Review study found no yield seasonality before market-based pricing was established. Post-auction mechanism implementation with predictable issuance schedules, seasonality became entrenched.

While December alone shows average returns, November-December combined outperforms all other two-month periods—a pattern stable for half a century. Researchers initially dismissed explanations like macroeconomic seasonality, weather effects, or Fed meeting cycles before identifying the driver: seasonal shifts in risk aversion.

The study concluded: "If autumn brings investor gloom and heightened risk aversion, Treasury prices should rise, producing above-average real yields. When spring revives sentiment and risk appetite, prices fall, yielding below-average returns."

Risk Warning: Markets involve risks. This analysis doesn't constitute investment advice. Investors should assess whether opinions align with their specific circumstances before making decisions.