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Treasury bonds are good investments at this time of year -- but not because of the Fed

  //stocks-investing.news-articles.net/content/202 .. his-time-of-year-but-not-because-of-the-fed.html
  Published in Stocks and Investing on Wednesday, November 5th 2025 at 8:14 GMT by MarketWatch

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Treasury Bonds: A Seasonal Safe Haven for Investors, Not a Fed‑Driven Play

In the latest MarketWatch analysis, financial experts argue that Treasury bonds have become a compelling investment choice during this time of year. Contrary to a popular narrative that the Federal Reserve’s policy moves are the primary catalyst for bond market strength, the piece highlights a distinct seasonal pattern that has historically favored U.S. government debt. By delving into the article’s data and following its internal links, readers can better understand why Treasury bonds are poised to perform well this quarter and how the broader economic backdrop shapes that outlook.

1. The Seasonal “December Effect”

One of the article’s core arguments is that the Treasury market typically sees a pronounced rally during the final month of the calendar year. The author cites several studies that show the 10‑year Treasury note, the benchmark for long‑term U.S. debt, often outperforms equities and other fixed‑income instruments in December. This “December effect” is driven by a combination of institutional portfolio rebalancing, year‑end tax considerations, and a heightened preference for safety as investors prepare for the holiday season.

The piece points out that fund managers frequently reallocate capital toward Treasuries to lock in yields before the new year, creating additional demand that drives prices up and yields down. Moreover, tax‑loss harvesting in December encourages investors to sell riskier assets, further boosting bond prices. Historical charts included in the article illustrate that the 10‑year yield has often dropped by 20–30 basis points in December, delivering a return that outpaces most other asset classes.

2. Why the Fed’s Policy Is Not the Main Driver

While the Federal Reserve has been raising rates aggressively to curb inflation, the article clarifies that this alone does not explain the Treasury’s recent performance. The author notes that the Fed’s policy stance is already priced into the current yield levels. “The Fed’s rate hikes have elevated yields to a point where the bond market’s attractiveness is driven more by supply‑side dynamics than by further rate changes,” the article explains.

The piece contrasts this view with the alternative narrative that Fed actions are the reason for bond market strength. By following the internal link to a MarketWatch report on the Fed’s minutes, readers see that the policy committee’s latest decision to keep rates unchanged in November was largely a response to the market’s already high yields. The author argues that the Fed’s decision to hold rates steady—rather than push them higher—has effectively capped the upside for yields, making the bonds a more appealing income source.

3. Yield Curve Analysis and Risk‑Premium Dynamics

The article goes on to examine the current shape of the Treasury yield curve, noting that it remains broadly upward sloping but has shown signs of mild flattening. The 2‑year Treasury yield sits around 5.5%, while the 10‑year is approximately 5.0%. This modest spread suggests that short‑term rates are rising faster than long‑term rates, a dynamic that can signal expectations of continued inflationary pressure or a more aggressive Fed stance in the near term.

A key takeaway from the analysis is that the risk‑premium component of Treasury yields—essentially the extra yield investors demand to compensate for holding long‑term debt—is now at a historically low level. This is partly due to the relative safety of U.S. Treasuries, especially during periods of market uncertainty. The article links to a recent Bloomberg piece that details how the risk‑premium has declined from the 2000s, making Treasuries comparatively attractive to corporate bonds and equities.

4. Inflation Expectations and Fiscal Policy

Another angle explored in the article is the role of inflation expectations. Market watchers have noted that while headline inflation remains above the Fed’s 2% target, the core CPI has cooled, suggesting that the price level is stabilizing. The author references a recent survey of consumer price expectations that indicates a gradual decline in future inflation forecasts. This reduced inflation outlook translates into a lower inflation premium on Treasury yields, thus making the bonds more appealing.

Fiscal policy is also considered a factor. With the Treasury Department announcing a modest increase in borrowing to fund infrastructure projects, the article argues that the additional supply of new debt is unlikely to overwhelm the seasonal demand. The Treasury’s forward‑looking debt issuance schedule, accessible via the TreasuryDirect website, shows that the upcoming issuance is spread across multiple maturities, mitigating the risk of a sudden spike in short‑term rates.

5. Practical Implications for Investors

For portfolio managers and individual investors alike, the article offers concrete recommendations. First, it advises building a diversified fixed‑income basket that includes a mix of short‑ and intermediate‑term Treasuries. Given the projected flattening of the yield curve, intermediate‑term holdings (5‑10 years) can provide a balance between yield and duration risk.

Second, the piece highlights the importance of monitoring the Fed’s upcoming policy meetings. While the current trajectory appears stable, any sign of an aggressive rate hike could compress yields further. The author suggests keeping an eye on the Fed’s “dot plot” released with each policy decision, which projects future rate paths.

Finally, the article cautions against complacency. Even though Treasuries currently offer attractive yields, they are not immune to interest‑rate risk. An unexpected shift in inflation or a change in the Fed’s policy stance could reverse the seasonal trend. Therefore, investors should maintain a watchful eye on macro‑economic indicators such as core CPI, employment data, and retail sales figures.

6. Conclusion

In sum, the MarketWatch analysis concludes that Treasury bonds are a prudent investment at this point in the year, primarily due to seasonal demand rather than the Federal Reserve’s policy moves. The article’s multi‑angle approach—examining historical trends, yield‑curve dynamics, inflation expectations, and fiscal policy—provides a well‑rounded view that can help investors make informed decisions. By following the internal links to Fed minutes, Bloomberg risk‑premium data, and Treasury issuance schedules, readers can deepen their understanding and assess how these factors interlace to create a favorable environment for U.S. government debt.

The take‑away is clear: While the Fed’s high‑rate stance sets the backdrop, the real engine driving Treasury performance during the holiday season is the seasonal shift in investor behavior. As the year draws to a close, those who position themselves to capture this cyclical uplift may enjoy attractive returns while preserving capital.