These days, the more unstable the economy becomes, the more people look for safe investment options, and among them, buying U.S. bonds is gaining attention. In particular, U.S. Treasury bonds are considered the safest asset in the financial markets. The biggest appeal is that they almost guarantee the preservation of principal while offering steady interest income.

To briefly explain what bonds are, they are like promissory notes where the government or companies borrow money from investors when they need funds, pay interest over a set period, and return the principal. The U.S. government also issues Treasury bonds to raise funds, making them the most trusted bonds worldwide.

There are three main types of Treasury bonds issued by the U.S. Department of the Treasury. Short-term bills (T-bills) with less than one year, medium-term notes (T-notes) between one and ten years, and long-term bonds (T-bonds) over ten years. Usually, the most actively traded bonds in the market are the 10-year Treasury bonds.

Understanding interest rates and yields is important, and the key point is that 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. The yield when buying or selling bonds is calculated based on the purchase price and expected returns.

The advantages of investing in U.S. Treasury bonds include, first, that the government guarantees repayment, making them almost risk-free assets. This is why many investors flock to U.S. Treasuries during economic downturns. Second, since interest rates are fixed at issuance, predicting returns is easy. It’s an ideal investment for retirees or those needing stable income. Third, liquidity is very high because the Treasury market trades on a massive scale daily, so you can sell anytime if needed. Lastly, there are tax benefits: U.S. Treasury interest is only subject to federal taxes and exempt from state and local taxes.

Of course, there are risks. When interest rates rise, the value of existing bonds falls. If you need to sell before maturity, you could incur losses. Also, if inflation exceeds the bond’s interest rate, real returns decrease. Foreign investors must also consider exchange rate fluctuations; if the dollar weakens, the returns when converted to Korean won could decrease. Lastly, there is credit risk, but the likelihood of the U.S. government defaulting on its debt is almost zero.

There are three main ways to buy U.S. bonds. The first is to buy directly. You can buy and sell Treasury bonds directly from the U.S. government through the TreasuryDirect website. The advantage is no commission, but there’s a limit of $10k per person per purchase. This method is preferred by conservative investors who want to manage their portfolios themselves.

The second way is to buy bond funds. Fund managers create and manage a portfolio by mixing various bonds. It allows investing in a diverse range of bonds with a small amount of money and receiving professional management. However, management fees are involved, which can slightly reduce overall returns. Also, you cannot select individual bonds yourself.

The third way is to buy bond ETFs. These are exchange-traded funds that track specific indices, and you can buy and sell them on stock exchanges like stocks. They tend to have lower fees and higher liquidity than funds. However, they are affected by market volatility, and you don’t benefit from active management gains.

Korean investors should consider certain factors when investing in U.S. Treasury bonds. The biggest concern is exchange rate risk, which can be hedged using derivatives like forward contracts to lock in rates. However, this means giving up potential favorable currency movements. It’s also important to consider duration (interest rate sensitivity) and to balance a portfolio with Korean bonds. This way, you’re prepared for both a strong and weak dollar scenario.

Tax considerations are also crucial. U.S. Treasury interest is subject to U.S. federal tax, but thanks to the Korea-U.S. double taxation treaty, you won’t be taxed twice in Korea. It’s best to consult a professional for precise tax handling.

If you build a portfolio with 50% Korean bonds and 50% U.S. bonds, you can diversify geographically, reducing risk, and be exposed to both won and dollar, helping you hedge against exchange rate fluctuations. When the dollar is strong, dollar assets are advantageous; when weak, won assets are better.

In conclusion, how to buy U.S. bonds depends on your investment goals and risk tolerance. For long-term stable income, direct purchase is suitable; for professional management, funds are ideal; and for low fees, ETFs are a good choice. Especially for Korean investors, it’s important to develop strategies considering exchange rates and taxes.