May is usually a good time to buy Treasuries. Why investors may want to disregard this seasonal noise.
By Isabel Wang
It's important to recognize that seasonality does not have much scope to operate with Treasuries: Carson Investment Research
One of Wall Street's oldest adages - "sell in May and go away" - has tempted stock-market investors into dumping equities this month and returning to the market in November. The opposite of this seasonal pattern exists in the U.S. government-debt market, according to Carson Investment Research.
See: Why 'sell in May and go away' could be a bit premature for stocks, according to one chart
U.S. Treasury bonds, tracked by the Bloomberg U.S. Intermediate Treasury Index, just ended their worst three-month period of 2024, Barry Gilbert, asset allocation strategist at Carson Investment Research, said in a Wednesday note. He said February, March and April individually have been the three worst-performing months of the year since 1979.
May starts one of the best six-month periods of the year, lagging only a little bit behind June through November, according to data compiled by Carson (see chart below). "It's not surprising to see bonds perform above average when stocks perform below average and vice versa. Despite our experience over the last few years, bonds on average, and Treasuries in particular, tend to be equity diversifiers," Gilbert said.
While the famous stock-market adage "sell in May and go away" has prompted some investors to sell their stocks in summer months and return to the market six months later, it's important to recognize that bond seasonality does not have as much scope to operate with Treasuries, since returns over time are driven almost entirely by interest income, Gilbert said.
The chart below shows the spread of average monthly returns is not as pronounced for Treasuries as for stocks, even taking into account the bond market's low volatility.
So how should investors understand the seasonal pattern for the Treasury market?
The seasonal pattern for Treasuries doesn't imply downward pressure on rates in itself, but it may indicate the risk of even higher rates is limited at this point, Gilbert said.
For example, the bond seasonality does make some investors "a little less worried" about a further run-up in rates as the 10-year Treasury yield BX:TMUBMUSD10Y moves towards the 16-year high of 5% hit in October, but Gilbert said he would rather "take his bearings from fundamentals," where shifting Federal Reserve's rate-cut expectations are still the dominant factor driving up the Treasury yields.
See: Powell keeps Fed's door open to a July rate cut
The yield on the 10-year Treasury was off 5 basis points to trade at 4.580% on Thursday afternoon after slipping over 9 basis points to 4.591% in the previous session. Bond yields move inversely to prices.
The central bank on Wednesday decided to leave interest rates unchanged at a range of 5.25% to 5.5%, and Chair Jerome Powell said it was unlikely the Fed's next move would be to hike rates despite "a lack of progress" in getting inflation back to 2%.
-Isabel Wang
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