Complete Guide to U.S. Bond Investment: Practical Strategies for Korean Investors

As economic uncertainty increases, the interest of global investors is shifting toward “safe assets.” At the center of this trend are U.S. Treasury Bonds. U.S. government-issued bonds are regarded as the most trusted assets in the global financial market, and Korean investors are turning to U.S. Treasury Bonds for diversification and dollar asset acquisition.

However, investing in U.S. Treasury Bonds cannot be recommended unconditionally just because they are considered “safe.” It is essential to understand complex factors such as interest rate fluctuations, exchange rate risks, and inflation accurately, and to develop strategies that match one’s investment profile. This article covers everything Korean investors need to know about U.S. Treasury Bonds, from basic concepts to actual purchase methods and market outlook.

What Are U.S. Treasury Bonds?

U.S. Treasury Bonds are debt securities issued by the U.S. government to raise funds. Since they are issued based on the credit and trustworthiness of the U.S. government, they are theoretically fully guaranteed in principal and interest as long as the country does not default.

From an investor’s perspective, it involves lending money to the U.S. government, receiving fixed interest over a certain period, and getting the principal back at maturity. Central banks worldwide, institutional investors, and individual investors hold U.S. Treasury Bonds, especially during economic crises when demand for “safe assets” surges.

Three Ways to Invest in U.S. Treasury Bonds

Let’s look at practical methods for Korean investors to invest in U.S. Treasury Bonds.

1. Direct Purchase of U.S. Treasury Bonds

Using the official TreasuryDirect website of the U.S. Department of the Treasury, individual investors can purchase bonds directly from the U.S. government. The minimum investment amount is $100, making entry easy, and transactions can be made without additional fees.

2. Investing via Domestic Securities Firms

Most domestic securities companies offer overseas bond trading services. Minimum transaction amounts and quantities vary by firm, but you can exchange Korean won for dollars in your Korean account and purchase U.S. Treasury Bonds. Consulting with a securities firm representative is an advantage.

3. Indirect Investment through U.S. Bond ETFs

Various ETFs based on U.S. bonds have been launched by domestic and international asset management firms. Major products include iShares 7-10 Year Treasury Bond ETF(IEF) and Vanguard Long-Term Treasury ETF(VGLT), allowing diversified investment through funds rather than purchasing individual bonds.

Choosing currency-hedged(H) products can minimize exchange rate gains and losses caused by dollar-won fluctuations, making them useful for investors who want to avoid currency risk.

Characteristics of Different Types of U.S. Treasury Bonds

U.S. Treasury Bonds are classified into three types based on maturity.

Short-term Bonds(Treasury Bills): Less than 1 year

• Issued at a discount, no separate interest payments
• Lowest interest rate fluctuation risk
• Excellent liquidity, ideal for short-term funds

Medium-term Bonds(Treasury Notes): 2 to 10 years

• Interest paid semiannually(coupon)
• Most actively traded, with 10-year notes serving as benchmark rates
• Popular among investors seeking stable returns

Long-term Bonds(Treasury Bonds): 20 and 30 years

• Offer relatively high interest rates
• Maximal price volatility due to interest rate changes
• Suitable for long-term stability seekers and pension funds

Understanding U.S. Bond Yields

U.S. Treasury Bond Yield indicates the expected return an investor can earn from holding the bond, expressed as a percentage. Yield calculations can vary.

Yield to Maturity(YTM)

• The total return if the bond is bought at the current price and held until maturity
• Calculated considering current price, face value, interest payments, and remaining time
• Formula: YTM = (C + (F-P)/n) / ((F+P)/2)
  • C: Annual coupon payment
  • F: Face value
  • P: Current price
  • n: Years remaining until maturity

Bond prices and YTM are inversely related: when bond prices rise, YTM falls; when prices fall, YTM rises.

Current Yield(Current Yield)

• The annual interest payment divided by the current market price
• For example, if annual interest is $50 and market price is $1,000, current yield is 5%

Benchmark Role of Yields

• The 10-year U.S. Treasury yield is a key indicator of long-term interest rates
• It serves as a reference for setting other financial rates

Major Factors Influencing the U.S. Bond Market

Internal Factors

Federal Reserve(Fed) Monetary Policy

• Rate hikes → decreased attractiveness of existing bonds → price decline
• Rate cuts → increased attractiveness → price rise

Inflation Trends

• Rising inflation → currency value decline → investors demand higher yields → bond prices fall

Economic Growth

• Economic boom → increased corporate profits → more attractive investment alternatives → bond yields rise

Government Fiscal Policy

• Increased issuance of government bonds → oversupply → price drops, yields rise
• Reduced issuance → supply tightness → price increases, yields fall

External Factors

Global Economic Uncertainty

• Signs of global economic crises → increased demand for safe assets → bond prices rise

International Political Instability

• War, terrorism, political turmoil → safe-haven demand → surge in bond demand

Volatility in Other Asset Markets

• Stock market boom → investors sell bonds to buy stocks → bond prices fall
• Stock market downturn → investors prefer bonds → bond prices rise

2025 U.S. Bond Market Status and Outlook

As of January 2025, the U.S. bond market is at a critical juncture. Expectations of the Federal Reserve lowering interest rates have led to rising bond prices(and falling yields).

According to Bloomberg data on January 3, 2025, the 10-year Treasury yield was 4.54%.

Projections by Major Institutions for 2025

• J.P. Morgan: expects the Fed to cut rates by 75 basis points annually
• Goldman Sachs: anticipates the economy may recover more strongly than expected, with two 25bp rate cuts totaling 50bp annually(

Most market experts predict that bond yields will decline slightly in the first half of 2025, then rebound once the Fed’s rate hikes conclude.

Key Issuance Schedule for U.S. Bonds in 2025

The U.S. Treasury regularly issues new bonds. Here is the main issuance schedule for early 2025:

The U.S. bond market operates from 9:30 AM to 4:00 PM Eastern Time, with daylight saving time)summer time( in effect.

U.S. Bonds vs. U.S. Stocks: Investment Characteristics Comparison

Features of U.S. Treasury Bonds:

• Stability: Fully backed by the government, virtually no default risk).
• Yield: Lower, as a trade-off for safety(.
• Volatility: Minimal, only linked to interest rate changes).
• Suitable for: Conservative investors, those needing stable cash flow.

Features of U.S. Stocks:

• Stability: Moderate to low, varies with corporate performance(.
• Yield: Higher, with better long-term average returns).
• Volatility: High, influenced by corporate news and market sentiment(.
• Suitable for: Aggressive investors seeking high returns.

U.S. Treasury Bonds provide fixed interest and minimize principal loss, serving as a core asset for portfolio stability. For Korean investors, including potential currency gains, actual returns can be even higher.

Considerations When Investing in U.S. Bonds

Exchange Rate Risk

• Possible loss if the dollar weakens
• Using hedged products is recommended to minimize risk

Interest Rate Risk

• Rate hikes → bond prices fall
• Long-term bonds are especially sensitive to rate changes

Inflation Risk

• High inflation reduces real returns
• Consider inflation-linked bonds)like TIPS(

Liquidity Risk

• Selling before maturity may incur losses
• Long-term investment planning is advised

Conclusion

U.S. Treasury Bonds are not just simple financial products but are key indicators and essential safe assets in the global financial market. In times of rising economic uncertainty, U.S. bond investment offers strategic value for Korean investors in portfolio diversification and dollar asset acquisition.

However, it is crucial to analyze various variables such as interest rate movements, currency risks, and inflation comprehensively, and to select bond types aligned with your investment goals and risk tolerance. Seek professional advice and make cautious investment decisions to pursue long-term asset growth.