Lately, the more unstable the economy becomes, the more investors seek safe assets. Why does the U.S. Treasury bond come to mind first? It's simple when you think about it. It's because there's a strong belief that the U.S. is unlikely to fail. Moreover, the 10-year U.S. Treasury yield is also used as an indicator of the health of the global economy.

To briefly explain what bonds are, they are certificates in which the government or companies promise to lend money. Investors receive the principal at a fixed maturity date and interest in the meantime. There are three main types of Treasury bonds issued by the U.S. Department of the Treasury: T-bills under one year, T-notes from 1 to 10 years, and T-bonds over 10 years. Among these, the most actively traded are related to the 10-year U.S. Treasury yield.

Here’s an important concept: bond prices and interest rates move inversely. When demand for Treasury bonds increases, prices go up and yields go down. Conversely, when demand decreases, prices fall and yields rise. This reflects investor sentiment.

There are several reasons why investing in U.S. Treasury bonds is attractive. First, because the U.S. government guarantees them, they are considered almost risk-free assets. Second, fixed interest rates provide predictable returns. Third, because they are actively traded in the bond market, liquidity is excellent. That means you can sell them easily when needed. Fourth, there are tax benefits, such as exemption from state and local taxes on interest income.

However, there are risks too. When interest rates rise, the value of existing bonds declines, and if inflation exceeds the interest rate, real returns decrease. For foreign investors, exchange rate fluctuations are also a concern. If a Korean investor buys U.S. Treasury bonds, the returns in won depend on the dollar exchange rate.

There are three main ways to invest. The first is purchasing directly through the TreasuryDirect website. The advantage is no commission, but there’s a maximum limit of $10k per person, and you have to wait until maturity. The second is bond funds, managed by professionals and allowing diversification, but management fees apply. The third is ETFs, which have low fees and can be bought and sold like stocks on an exchange, offering high liquidity.

For Korean investors, a good strategy is to diversify by combining Korean and U.S. Treasury bonds. If the economic cycles of the two countries differ, one can serve as a cushion when the other is underperforming. Holding assets denominated in both won and dollars can also help offset exchange rate risks to some extent.

However, currency risk must be considered. Even if the 10-year U.S. Treasury yield is high, if the dollar weakens, returns in won could decrease. Hedging through derivatives like forward contracts is possible to lock in exchange rates, but it can reduce overall returns. It’s wise to hedge only part of the investment and keep some exposure.

Duration is another factor to consider. It measures a bond’s sensitivity to interest rate changes; longer-term bonds are more affected by rate fluctuations. Conservative investors might prefer long-term U.S. Treasuries for stability, while those seeking less volatility might mix in shorter-term bonds.

Tax considerations are also important. U.S. Treasury bond interest income is subject to U.S. federal tax, but since Korea and the U.S. have a double taxation treaty, double taxation can be avoided. Consulting a tax professional is recommended.

Ultimately, U.S. Treasury bonds are a highly stable investment that offers predictable returns. Understanding risks like interest rate changes, inflation, and exchange rates, and tailoring strategies accordingly, can help build a solid asset portfolio. Managing various assets on platforms like Gate, including Treasury bonds, can also be an effective approach.