The more unstable the economy feels these days, the more many investors want to find safe assets. In particular, U.S. Treasury bonds are widely regarded as the most trustworthy investment option, based on the belief that the United States will never collapse. Even if the headline interest rate is low, they can be cashed out at any time, and investors are drawn to the expectation of regular interest income.

Let’s first briefly summarize what bonds are. Bonds are essentially certificates of indebtedness showing that the issuer (the debtor) has borrowed money from investors. When a government lacks sufficient funds to run the country, it issues government bonds to borrow money and pay interest. In the U.S. Treasury market, the most actively traded product is the 10-year Treasury, which moves according to the yield of the 10-year U.S. Treasury. This benchmark acts as an important signal that goes beyond being just an investment product—it reflects the health of the global economy.

U.S. Treasury bonds are broadly divided into three categories. There are T-bills (short-term) with maturities under 1 year, T-notes (medium-term) with maturities from 1 to 10 years, and T-bonds (long-term) with maturities from 10 to 30 years. Each provides a fixed interest rate, and especially when the economy is uncertain, stable Treasuries play a core role in an investment portfolio. Since the yield on 10-year U.S. Treasury bonds serves as a benchmark for financial markets and a measure of a risk-free return, it is a key indicator that investors should closely watch.

It’s important to understand that bond yields and prices move in opposite directions. When demand for Treasuries increases, prices rise and yields fall; conversely, when demand decreases, prices fall and yields rise. Therefore, the 10-year U.S. Treasury yield can be viewed as a real-time indicator that reflects market sentiment.

So what is the biggest appeal of investing in U.S. Treasuries? First, there is the safety backed by the U.S. government. This is why investors turn to them first during periods of economic downturn. Second, they provide predictable returns with a fixed interest rate, which can be especially beneficial for retirees as a stable source of income. Third, because trading is most active in the bond market, they offer strong liquidity and can be sold whenever needed. Fourth, interest income is exempt from state and local taxes, which may help increase after-tax returns.

Of course, risks also exist. When interest rates rise, the value of existing bonds declines. If you have to sell before maturity, you may have to accept losses. If inflation exceeds the Treasury yield, real returns will decrease. For overseas investors, exchange rate fluctuations affect returns. And while there is theoretically a risk of the U.S. government defaulting on its debt, the United States has a very high credit rating, so the actual risk is extremely low.

There are three ways to buy U.S. Treasuries. The first is to purchase directly from the U.S. government through the TreasuryDirect website. Although the personal investment limit is capped at 10,000 dollars, there are no management fees, and if you hold until maturity, you can receive regular interest and principal payments. If you want diversification, you would need to buy multiple bonds, which requires a substantial amount of funds and management.

The second is bond funds. Professional fund managers manage diversified bond portfolios, so individual investors don’t need to manage them directly. Diversification is possible even with small amounts, but management fees may reduce returns.

The third is bond ETFs. Since they track U.S. Treasury bond indexes, their fees are generally lower than bond funds, and they can be traded freely like stocks. However, their prices may move with market volatility, and because they are passive funds, they do not offer the advantages of active management in response to changes in market conditions.

Let’s consider what Korean investors should take into account when investing in U.S. Treasuries. Because exchange rate fluctuations directly affect returns, it’s also an option to hedge part of the investment using currency hedges. When the U.S. dollar strengthens, the unhedged portion can generate additional returns; when it weakens, the hedged portion can offset losses.

Duration (sensitivity to interest rate changes) is also important. If your goal is to preserve principal over the long term, a portfolio of long-maturity Treasuries tends to be more stable. If you want to be less sensitive to interest rate fluctuations, you can mix in shorter-maturity bonds.

You also need to consider taxes. Interest on U.S. Treasuries is subject to U.S. federal tax, but it may also be taxed in Korea. Fortunately, Korea and the U.S. have a tax treaty to prevent double taxation, so it’s advisable to consult a tax professional to develop an optimal tax strategy.

Let’s take an example of a portfolio that combines Korean government bonds and U.S. Treasuries in a 50:50 ratio. This kind of allocation diversifies by region and currency, spreading each country’s economic risks. Because you hold assets denominated in both won and dollars, you can hedge exchange rate fluctuations to some extent. And if the business cycles of Korea and the U.S. differ, a downturn in one may be offset by growth in the other. If the yield on 10-year U.S. Treasuries is higher than that of Korean Treasuries, you may also be able to optimize returns by increasing the share of U.S. bonds.

In conclusion, U.S. Treasuries provide stable investment opportunities for both individual and institutional investors. However, it’s important to properly understand and manage risks such as interest rate changes, inflation, and exchange rate fluctuations. For Korean investors, diversifying across U.S. Treasuries and Korean government bonds can help stabilize the portfolio and optimize returns. You can choose the method—direct purchase, funds, or ETFs—based on your situation and risk tolerance. In times like these, it’s wise to monitor the trend of the 10-year U.S. Treasury yield and develop an investment strategy.