Return Seasonalities in Government Bonds and Macroeconomic Risk

Abstract

We present a novel explanation of the cross-sectional seasonality anomaly in government bond returns. The macroeconomic risk premia may accrue unevenly during the calendar year, and the pattern may be transferred to government bond prices. We decompose the seasonality strategy payoffs into predicted and unexpected components. The seasonality effect plays a role only for the predicted component, linking the sources of the phenomenon with macroeconomic risk factors.

Keywords: government bonds, return seasonality, macroeconomic risk, asset pricing, calendar anomalies

JEL Classification: G12, G14, G15