Original paper
Abstract
We document a distinct pattern in the timing of excess returns on coupon Treasury securities. Average returns are positive and highly significant in the last few days of the month, and are not significantly different from zero at other times. A long Treasury position for just the last few days of each month gives a high annualized Sharpe ratio of around 1. We attribute this pattern to temporary spikes in investor demand for specific securities due to window dressing and portfolio rebalancing. We find evidence in quantities that aggregate insurer transactions contribute to the end-of-month price pattern. In particular life insurers are large net buyers of Treasury securities on benchmark index rebalancing dates.
Keywords:Â Treasury yields, anomalies, market efficiency, excess returns, month-end, portfolio rebalancing
Trading rules
- Concentrate on futures for 30-year Treasuries.
- Buy futures five days prior to the month's end.
- Sell futures on the last day of the month.
Python code
Backtrader
import backtrader as bt
import datetime
class EndOfMonthStrategy(bt.Strategy):
def __init__(self):
self.order = None
def next(self):
# If there's an active order, do nothing
if self.order:
return
# Check if today is 5 days before month-end
today = self.data.datetime.date(0)
month_end = datetime.date(today.year, today.month, 1) + datetime.timedelta(days=32)
month_end = month_end.replace(day=1) - datetime.timedelta(days=1)
if today == month_end - datetime.timedelta(days=5) and not self.position:
self.order = self.buy()
# Check if today is the last day of the month
if today == month_end and self.position:
self.order = self.sell()
def notify_order(self, order):
if order.status in [order.Completed]:
self.order = None
cerebro = bt.Cerebro()
data = bt.feeds.YourDataFeed(dataname='30-year_Treasury_futures_data')
cerebro.adddata(data)
cerebro.addstrategy(EndOfMonthStrategy)
cerebro.run()