Treasury Month-End Index-Extension Flow on IEF: Long the 7-10Y Treasury ETF for the LAST 3 Trading Days of Each Month, Flat Otherwise (IEF.USEQ 1-DAY, long-only, 2x Reg-T, flat ~86% of the time, pure calendar, 1 parameter)

A single-instrument, single-leg calendar trade on a US Treasury ETF. The economic cause is not a price pattern. It is a known institutional flow, the month-end duration extension. At every month-end the Bloomberg US Treasury / Aggregate indices drop bonds that have fallen below one year to maturity and add the new auctions. Index duration therefore jumps up on the last business day of the month. The trillions of dollars benchmarked to those indices (index funds, ETFs, liability-matched pension and insurance mandates, benchmarked active managers) have to buy duration into that date so they don't show a short-duration tracking error at the month-end valuation snapshot. That buying is concentrated in the final days of the month, it is predictable, and it pushes intermediate and long Treasury prices up. It is paid by the benchmarked managers, who are price-insensitive because tracking error, not price, is what they are measured on. Their counterparties are dealers and anyone who sells duration into month-end. This mechanism has never been run in this factory: the corpus contains no bond-ETF calendar hypothesis. TLT/IEF appear only as defensive legs in abandoned SPY/QQQ regime rotations, and the equity turn-of-month runs (SPY/QQQ) are a different cause, payroll/401k equity inflows. Those equity runs also show weak statistics (SPY last-3 t = 1.36), whereas bonds show t > 4. POINT-IN-TIME PRE-STUDY (L166). I ran this on the catalog's own USEQ 1-DAY bars, 2002-07 to 2026-09, 289 months. The trade is to hold from the close of the 4th-to-last trading day to the close of the last trading day of the month: - IEF last-3: mean +0.216% per trade, hit rate 62%, t = 5.52, calendar Sharpe 1.04 (1x, zero days included). Pre-2014 mean 0.209%, post-2014 0.221%, so the effect is stable across both halves. 88% of years are positive. At 1x the max DD is 6.0% and the worst calendar year is -1.3%. The final-20% holdout window (Dec 2021 onward) has calendar Sharpe 0.85. It made money in 2022, the worst bond bear market in 40 years (+9.0% at 2x), which shows it is not duration beta. - The effect holds on every bond ETF tested with the same fixed window, so it is not tuned to IEF: AGG t = 6.65 (Sharpe 1.14), TLT t = 4.53 (0.83), LQD t = 4.88 (0.62). Last-5 and last-7 windows also work on IEF (0.254%, 0.264%), so the effect is not a knife-edge. - Not carry: IEF's coupon accrual is about 1.3-1.6bp per day, roughly 4-5bp over 3 days. The measured 21.6bp is about 5x that. - DIVIDEND ARTIFACT AVOIDED BY CONSTRUCTION: iShares Treasury ETFs go ex-dividend around the FIRST business day of the month. Because dividends are not in USEQ PnL, holding across that date would book a fake ~-0.2% price drop, which is visible as the first-3-day mean of -0.28%. This design exits at the close of the LAST trading day, so it never holds across the ex-date. I deliberately did NOT add a 'short the first days of the month' leg: that return is mostly the unpaid distribution, not an edge. I chose IEF over TLT because it has the higher calendar Sharpe and far lower volatility per unit of flow. The single parameter N = 3 was fixed from the index-rebalance timing argument (flow concentrates in the last few sessions), and the neighbouring values N = 5 and N = 7 are reported above. FEE ARITHMETIC: USEQ has zero commission. Cost is about 0.02-0.05% round trip (spread plus impact) on IEF, one of the most liquid bond ETFs with a ~1bp spread. The gross per-trade move is 0.216%, which is 4-10x the round trip. At 2x Reg-T the per-equity return per trade is about 0.43%. RISK PROFILE: 2x Reg-T gross leverage (IEF's daily vol is about 0.4%, so a 3-day hold at 2x risks roughly 1.4% of equity at 1 sigma). The position is 200% of equity notional. Stop: the position is exited at the close if the open trade is down more than 2.0% of notional (about 4% equity). This almost never triggers for a 3-day IEF hold and exists only to cap a Treasury-auction or FOMC shock. There is no other exit except the calendar. Max exposure is one position. Expected flat state: about 86% of trading days (3 of ~21 sessions per month). Expected lifetime trades: about 285 on 1-DAY history from 2002, and about 100 on the 20k-bar sandbox window. Source: the mechanism is documented in the fixed-income literature as the 'month-end index extension' effect (dealer research, and e.g. Hartley and Schwarz, 'Predictable End-of-Month Treasury Returns', 2019). It is restated here from first principles; there is no code port.