Taiwan Investors Must Read: The Complete Guide to U.S. Government Bonds

Things You Need to Know Before Starting

Many Taiwanese investors have heard of U.S. government bonds (also called U.S. Treasuries), but few truly understand what they are, how to buy them, or how much they can earn. Today, we’ll systematically introduce this the world’s safest investment tool.

What Are U.S. Government Bonds

Simply put, U.S. government bonds are bonds issued by the U.S. government to raise funds from investors. When you purchase U.S. Treasuries, it’s equivalent to lending money to the U.S. government, which promises to return the principal and pay interest within the agreed timeframe.

Why are U.S. Treasuries so popular? The answer is simple—the U.S. government’s credit rating is among the top in the world. Because of this credit guarantee, U.S. Treasuries are recognized as one of the lowest-risk assets in global investment portfolios. Whether individual investors or institutions, most consider U.S. Treasuries an important allocation in their portfolios.

Comparing Three Ways to Buy U.S. Treasuries in Taiwan

If you want to buy U.S. Treasuries in Taiwan, there are three options. Which one to choose depends on your capital size and risk tolerance.

Method 1: Direct Purchase of Bonds

Through overseas or domestic brokerage firms via entrusted trading, you can buy existing U.S. Treasuries on the secondary market.

The purchase process is simple:

• Open a securities account with a broker
• Search for bond codes or use screening tools (by maturity, yield)
• Place an order (market or limit order)
• Receive interest periodically during holding, sell on the secondary market if needed

Advantages and disadvantages of direct purchase:

The advantage is high liquidity—you can trade anytime, and allocation is flexible. But the drawbacks are clear—high minimum purchase (usually starting at $1,000 USD), commissions and fees during transactions, and bond prices are sensitive to market fluctuations. For ordinary investors with limited funds, this method might be a bit high in threshold.

Method 2: Bond Funds

The core advantage of bond funds is “diversification.” When you buy a bond fund, you’re effectively holding a basket of bonds, which can significantly reduce the risk associated with any single bond.

Bond funds generally have a lower minimum purchase, often starting at $100 USD. But they have a downside—management fees that eat into your returns. For beginners, bond funds may not be the best choice.

Method 3: Bond ETFs (Recommended for Beginners)

Bond ETFs combine the advantages of stocks and funds. They can be traded freely on brokerage platforms like stocks, but also offer a diversified bond portfolio. The key benefit is—transaction costs are much lower than bond funds, making them very suitable for small investors.

Common U.S. Treasury Bond ETFs include:

• TLT (iShares 20+ Year Treasury Bond ETF)—Long-term government bonds
• IEF (iShares 7-10 Year Treasury Bond ETF)—Mid-term government bonds
• SHY (iShares 1-3 Year Treasury Bond ETF)—Short-term government bonds
• VGSH (Vanguard Short-Term Treasury Index Fund ETF)—Ultra-short-term government bonds
• TIP (iShares TIPS Bond ETF)—Inflation-protected securities
• GOVT (iShares U.S. Treasury Bond ETF)—Composite government bond portfolio

Comparison of the three methods:

Four Classifications of U.S. Treasuries

Short-term Treasury Bills (T-Bills)

• Maturity: Under 1 year (commonly 4, 13, 26, or 52 weeks)
• Features: Zero-coupon bonds sold at a discount, redeemed at face value at maturity
• Example: A 1% rate T-Bill might be bought at $99 for a $100 face value
• Suitable for: Investors seeking quick returns and high liquidity in short-term investments

Short-term bonds have the advantage of quick capital recovery, suitable for flexible cash management.

Medium-term Treasury Notes (T-Notes)

• Maturity: 2 to 10 years (common: 2, 3, 5, 7, 10 years)
• Features: Pays interest twice a year, the most mainstream government bond type
• Key Indicator: The 10-year U.S. Treasury yield is called the “global asset pricing anchor,” a key indicator for the overall bond market
• Suitable for: Mid-term investors seeking stable cash flow

Long-term Treasury Bonds (T-Bonds)

• Maturity: 10 to 30 years (usually 30 years)
• Features: Pays interest twice a year, long maturity but good liquidity in the secondary market
• Suitable for: Long-term investors aiming for stable high yields

Inflation-Protected Securities (TIPS)

TIPS are a special type of government bond with principal linked to inflation. When the Consumer Price Index (CPI) rises, TIPS principal increases; if deflation occurs, principal decreases (but at maturity, at least the original face value is returned).

Example:

Suppose you buy a $1,000 face value TIPS with 1% coupon.

If inflation is 5% that year:

• Adjusted principal = $1,000 × 1.05 = $1,050
• Semi-annual interest = $1,050 × 1% ÷ 2 = $5.25

At maturity, the government returns the adjusted principal ($1,050) or the original ($1,000), whichever is higher.

TIPS are especially suitable for investors worried about inflation eroding purchasing power.

How to Calculate and Check U.S. Treasury Yields

Two key concepts:

Current Yield = Annual interest ÷ Current price × 100%

This is the simplest and most intuitive figure, but not comprehensive. The more important indicator is:

Yield to Maturity (YTM) = The actual annualized return an investor will get if holding the bond until maturity

YTM calculation is complex, involving interest income, principal gains/losses, and price changes over holding period. Fortunately, you don’t need to do manual calculations—just check online.

Where to Check Yields

• Official sources: Federal Reserve or U.S. Treasury websites publish daily yield curves
• Financial websites: Investing.com, CNBC, WSJ, etc., provide real-time updates
• Broker platforms: Most bond trading brokers can provide specific bond YTM info

Understanding the Inverse Relationship of Bonds

A core concept you must grasp before investing in U.S. Treasuries: Bond prices and yields move inversely.

Why? Because the fixed cash flows at maturity mean that when bond prices rise, the actual yield decreases; when prices fall, yields increase. Buying bonds at lower prices results in higher returns.

Factors Affecting U.S. Treasury Prices

Internal Factors: Maturity and Coupon Rate

Longer maturity bonds carry higher potential risk, so investors demand higher compensation, often leading to lower issuance prices for long-term bonds to attract buyers.

External Factors

1. Interest Rate Environment

This is the most direct influence. When the central bank raises interest rates and market rates go up:

• Newly issued bonds have higher coupon rates
• Existing bonds with lower rates fall in price
• Yields rise accordingly

Conversely, when rates fall, existing bond prices increase.

Recent examples: The Fed’s aggressive rate hikes caused bond prices to plummet and yields to soar to multi-year highs.

2. Economic Conditions

During economic downturns, risk appetite drops, funds flock to safe government bonds, pushing prices up. During boom times, the opposite occurs.

3. Inflation

Rising inflation → higher interest rates → falling bond prices. Investors demand higher yields to compensate for inflation eroding real returns.

4. Issuance Scale

When the government issues大量国债，市场供给增加，如果需求未同步增长，价格会下跌。反之亦然。

U.S. Treasury Auction Schedule

The U.S. government regularly conducts bond auctions to determine the issuance price and yield.

You can check detailed auction dates on the official U.S. Treasury website.

Which U.S. Treasury Bond to Choose

Short-term bonds are suitable if:

• You need short-term cash flow
• You prioritize high liquidity
• You are uncertain about market outlook

Mid-term bonds are suitable if:

• You want a balance between yield and liquidity
• You have a 3-5 year investment horizon
• You want to track overall bond market performance

Long-term bonds are suitable if:

• You have ample time for compounding
• You seek stable long-term income
• You can tolerate short-term price fluctuations

TIPS are suitable if:

• You are concerned about inflation
• You want to protect real purchasing power
• You anticipate rising inflation in the future

Final Advice

For Taiwanese investors, entering the U.S. bond market via bond ETFs is the most practical choice. It combines low cost, flexible trading, and risk diversification.

Start small (e.g., invest a few thousand TWD), understand market operations, and gradually adjust your allocation based on your risk tolerance and investment horizon. U.S. Treasuries won’t give you explosive profits, but they provide steady, predictable returns—exactly what long-term investors need.