Jack Fischer
- US fixed income markets show higher January returns, but statistical tests confirm no significant "January effect."
- Fund flows shift seasonally, with investors moving from money markets to bonds in January.
- September is the real outlier, showing a statistically significant decline across US Treasuries and investment-grade bonds.
What is the January effect?
The January effect is a well-known market anomaly, where stocks—especially small caps—experience higher monthly performance in January than during the remaining months of the year.
Recent data shows that the January effect in stock markets has become less pronounced over time. But there’s been far less research into whether US fixed income markets are similarly affected.
Some factors which might contribute to this effect playing out in US debt markets include:
- Year-end tax-loss harvesting/window-dressing, followed by reinvestment in January.
- A lack of newly issued debt in Q4, causing a supply and demand mismatch to start the year.
- Individual investors putting their year-end bonuses to work in January.
- A behavioural finance influence that entices investors to revisit their portfolio allocations after the New Year holiday—much like we all want to revisit the gym each January.
In the following sections we use FTSE Fixed Income index returns, flow data, and macro factors to see if January’s return differences are indeed statistically significant.
Is January any different in US fixed income markets?
If we look at the returns of a broad range of FTSE fixed income indices over the past 10 and 20 years, January does indeed stand out. Compared to the monthly average return, there has been a strong outperformance of US fixed income indices in January across a variety of sectors. But has this excess return been statistically significant?
| FTSE Index | January ‘25 Return (%) | 10-Year Jan. Av. (%) | 10- Year Mon. Av. (%) | 20-Year Jan. Av. (%) | 20- Year Mon. Av. (%) |
|---|---|---|---|---|---|
| FTSE US Broad Investment Grade (USBIG) | 0.52 | 0.55 | 0.15 | 0.51 | 0.27 |
| FTSE USBIG Treasury (USBIG TSY) | 0.49 | 0.59 | 0.10 | 0.4 | 0.22 |
| FTSE US Inflation Linked Securities (ILS) | 1.30 | 0.69 | 0.18 | 0.95 | 0.3 |
| FTSE USBIG Corporate (USBIG CORP) | 0.56 | 0.70 | 0.25 | 0.72 | 0.37 |
| FTSE High Yield Market (HYM) | 1.46 | 0.8 | 0.44 | 1.10 | 0.54 |
| FTSE USBIG Mortgage (USBIG MTG) | 0.51 | 0.38 | 0.11 | 0.48 | 0.24 |
| FTSE Emerging Markets USD Gov. Bond (EMGBI) | 1.41 | 0.62 | 0.29 | 0.49 | 0.48 |
Source: FTSE Russell Index Module (FIXM). Data as of 01/31/2025. Returns in USD unhedged. Past performance is no guarantee of future results. Past performance is no guarantee of future results.
First, we started with a simple t-test, comparing January’s mean return to the other monthly averages. In the test, we used the FTSE Treasury, FTSE US Broad Investment Grade (USBIG), FTSE US High Yield Market, and FTSE Municipal Tax-Exempt IG (MUNITEIG) indices.
Our conclusion from the t-test was that although January returns tended to be higher, there was no statistically significant January effect.
Next, we tried a regression analysis to measure January’s return impact while controlling for a handful of macroeconomic variables, including interest rates, US Treasury yields, US personal consumption expenditure, and fund flow data.
| FTSE Index | Jan Effect Coef. | P-Value | Statistically Significant? |
|---|---|---|---|
| FTSE US Broad Investment Grade (USBIG) | +0.41% | 0.346 | No |
| FTSE USBIG Treasury (USBIG TSY) | +0.59% | 0.193 | No |
| FTSE USBIG Corporate (USBIG CORP) | +0.26% | 0.645 | No |
| FTSE High Yield Market (HYM) | -0.07% | 0.905 | No |
| FTSE US Municipal Tax-Exempt IG (MUNITEIG) | +0.10% | 0.829 | No |
Our conclusion once again, is that there was no statistical significance in January returns across these fixed income sectors over the past 10 years. Even though there was no statistical significance, the FTSE USBIG Treasury Index did show strong positive bias with a coefficient near 0.6.
No January effect, but wait until September
During this process we did find that September saw statistically significant negative returns across Treasuries, Core Bond, and IG Corporate sectors. So, while we can’t conclude the January Effect plays a material role in US debt markets, we did find that there is a clear seasonal decline in select sectors during the month of September.
What about fund flows?
Flows are always an interesting story around year-end as capital allocators re-evaluate market opportunities, rebalance portfolios, address tax implications, and plan income targets for the coming year.
In the final five months of 2024, investors flooded cash into money market funds (+$634.8 billion), while US fixed income funds reported only modest inflows. The market’s uncertainty around inflation, immigration, taxes, and geopolitics surely initiated some flight to safety into cash and cash-like investments. However, a Q4 movement into money markets and a subsequential reinvestment in January has been a largely reliable trend over the past decade.
In January 2025, US fixed income funds attracted $45.4 billion in inflows while money markets only captured $10.0 billion. Interestingly enough, last January, money markets brought in more than US fixed income funds—the only January in which this has occurred over the prior 10 years.
Monthly Net Flows ($Bil): Money Markets and US Fixed Income Funds
Source: LSEG Lipper Global Fund Flows (GFF). Data as of 01/31/2025. Data includes both conventional mutual funds and ETFs. Past performance is no guarantee of future results.
| 10-Year Average Monthly Net Flow | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| US Money Markets | (19.0) | 22.4 | 94.1 | 19.8 | 52 | (18.9) | 14.6 | 41 | 12.6 | 17.8 | 68.6 | 59.3 |
| US Fixed Income Funds | 40.3 | 27.1 | (7.9) | 25.0 | 24.7 | 22.6 | 35.8 | 27.7 | 24.3 | 20.4 | 16.8 | 6.6 |
Source: LSEG Lipper Global Fund Flows (GFF). Data as of 01/31/2025. Data includes both conventional mutual funds and ETFs. Past performance is no guarantee of future results.
No January effect, but wait until September
The FTSE High Yield Market index led the way in January 2025 (+1.46%) after being both the top 2024 performer (+8.49%) and the only index to report Q4 2024 gains (+0.23%). The FTSE Emerging Markets Broad Bond index was another bright spot in January (+1.07%) and throughout 2024 (+6.55%)—ending last year in second place among a broad range of dollar-denominated FTSE fixed income sectors.
The FTSE US Inflation Linked Securities index realised a nice bounce-back in January (+1.30%) after a tough end to the year— inflation-linked bonds recorded negative returns in December (-1.59%) and Q4 (-2.90%).
| Classification | FTSE Index | January ‘25 Return (%) | MoM Spread Change (%) | YTW | Eff Dur | OAS | Quality |
|---|---|---|---|---|---|---|---|
| Core Bond | FTSE US Broad Investment Grade (USBIG) | +0.52 | +0.0 | 4.91 | 5.95 | 33 | AA |
| Treasury | FTSE USBIG Treasury (USBIG TSY) | +0.49 | -0.0 | 4.43 | 5.72 | 0 | AA+ |
| Inflation-Protected | FTSE US Inflation Linked Securities (ILS) | +1.30 | -190.4 | 4.37 | 4.19 | -5 | AA+ |
| IG Corporate | FTSE USBIG Corporate (USBIG CORP) | +0.56 | -0.3 | 5.32 | 6.79 | 82 | A- |
| High Yield | FTSE High Yield Market (HYM) | +1.46 | -8.2 | 7.35 | 3.22 | 291 | B+ |
| Mortgages | FTSE USBIG Mortgage (USBIG MTG) | +0.51 | +6.0 | 5.34 | 5.65 | 36 | AA+ |
| Tax-Exempt | FTSE US Municipal Tax-Exempt IG (MUNITEIG) | +0.34 | +7.1 | 3.71 | 7.21 | 56 | AA |
| World Income | FTSE World Government BIG (WGBI) | +0.46 | -10.3 | 3.37 | 6.93 | 5 | AA |
| Emerging Markets | FTSE Emerging Markets Broad Bond (EMBBI) | +1.07 | -6.6 | 6.60 | 6.14 | 212 | BBB |
Source: FTSE Russell Index Module (FIXM). Data as of 01/31/2025. Returns in USD unhedged. Past performance is no guarantee of future results.
Where did fixed income flows go?
LSEG Lipper global fund flows data tell us that floating rate and CLO funds took in $9.5 billion during January, followed by Short US Treasury (+$5.6 billion), General US Treasury (+$5.0 billion), and Ultra-Short Obligation funds (+$4.9 billion). So far in February, the same sectors—ultra-short and floating rate funds—have continued to top the fund inflow charts.
Top 10 January Inflows ($Bil) By Lipper Classification
Source: LSEG Lipper Global Fund Flows (GFF). Data as of 01/31/2025. Data includes both conventional mutual funds and ETFs.
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