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

As economic uncertainty deepens, there is an asset that attracts the attention of global investors. That is U.S. bond investment. Especially during periods of interest rate hikes, many Korean investors are turning their eyes to this asset, seeking stable cash flow. In this article, we will systematically organize the characteristics of U.S. bonds, actual trading methods, and precautions.

What are U.S. Bonds? Starting with Basic Concepts

U.S. bonds issued by the U.S. government are backed by the full faith and credit of the United States. From an investor’s perspective, it involves lending funds to the U.S. government in exchange for regular interest payments and principal repayment at maturity.

The U.S. government is regarded as the highest credit rating country with virtually no default risk. Therefore, U.S. bond investment is considered one of the safest assets in the global market. It is especially popular among conservative investors seeking predictable returns without principal loss concerns.

How to Choose U.S. Bonds Suitable for Your Investment Goals

The most important classification criterion for U.S. bonds is maturity. Selecting appropriate products based on investment period and risk tolerance determines returns.

Short-term bonds: When quick capital turnover is needed

1-year or less maturity short-term bonds(Treasury Bills)are purchased at a discounted price and redeemed at face value at maturity. They do not pay separate interest but generate profit through trading gains. The price fluctuation due to interest rate changes is small, resulting in low volatility risk. Suitable for investors managing short-term funds or using as cash alternatives.

Mid-term bonds: Balancing stability and returns

Mid-term bonds(Treasury Notes)with maturities between 2 and 10 years are the most actively traded products in the U.S. bond market. Especially, the 10-year note serves as a benchmark for long-term interest rates and is a key indicator watched by global financial markets. Paying interest regularly every six months, they are popular among investors seeking stable cash flow.

Long-term bonds: Aiming for higher returns while accepting volatility

Long-term bonds(Treasury Bonds)with maturities of 20 or 30 years offer relatively high interest rates. However, they carry significant interest rate risk, as their value drops sharply when rates rise. Mainly held by institutional investors or pension funds prioritizing long-term stability.

Three Ways for Korean Investors to Invest in U.S. Bonds

Direct Purchase: Cheapest without fees

Can be purchased directly through the TreasuryDirect website operated by the U.S. Department of the Treasury. The minimum investment is only $100, and there are no brokerage fees. However, administrative procedures such as opening a U.S. bank account can be complex.

Using Securities Firms: Easy process domestically

Utilize foreign currency bond services offered by domestic securities companies. This allows skipping complex procedures like overseas remittance or account opening. However, minimum transaction amounts and fee standards vary by firm, so prior confirmation is necessary.

ETF Investment: Diversify with small amounts

U.S. bond ETFs are widely listed on domestic and international markets. You can diversify across multiple bonds with a single ETF without selecting individual bonds. Representative products include the U.S. market’s iShares Barclays TIPS Bond ETF(TIP), iShares 7-10 Year Treasury Bond ETF(IEF), Vanguard Long-Term Treasury ETF(VGLT).

Hedged products(H) minimize exchange rate risk, making them useful for investors who want to avoid currency fluctuations. Conversely, investors aiming for exchange rate gains should choose unhedged products.

How to Calculate U.S. Bond Yields?

Yield to Maturity (YTM)(: The Most Important Indicator

YTM is the total return an investor can expect if holding the bond until maturity. It reflects the current purchase price, periodic interest)coupon(, and principal repayment at maturity.

YTM = )C + (F - P) / n / (F + P) / 2(

• C: Annual interest payment
• F: Face value(and amount received at maturity)
• P: Current market price
• n: Remaining years until maturity

Bond prices and yields move inversely. When bond prices rise, yields fall; when prices fall, yields rise. For example, if you buy a $1,000 face value bond at $1,100, the interest received remains the same, but the principal repayment results in a loss, lowering the actual yield.

) Current yield: Simple but limited

Current yield is the annual interest divided by the current bond price. For example, if a bond pays $50 annually and is purchased at $1,000, the current yield is 5%. However, it does not consider time value or principal repayment, so its accuracy is limited.

( Role as a benchmark interest rate

The U.S. 10-year bond yield serves as a ‘benchmark’ in the global financial market. It influences corporate lending rates, mortgage rates, and yields of bonds from other countries.

Where is the U.S. bond market heading in 2025?

As of January 2025, the U.S. bond market is at a critical turning point. According to Bloomberg data, the 10-year bond yield on January 3rd was 4.54%.

As the possibility of interest rate cuts becomes prominent, bond prices are rising(and yields are falling). However, opinions among experts vary. JP Morgan forecasts a 75bp rate cut by the Fed, while Goldman Sachs expects the economy to recover more strongly than anticipated, leading to only two 25bp rate cuts.

Most major institutions predict that bond yields will slightly decline in the first half of 2025 and then rebound after the Fed’s rate cuts end.

Major Factors Affecting U.S. Bond Prices

) Domestic Economic Factors

Federal Reserve’s interest rate policy directly impacts the bond market. Rate hikes increase yields on newly issued bonds, causing demand for existing low-yield bonds to plummet. Conversely, rate cuts raise the value of existing bonds.

Inflation concerns lead investors to demand higher nominal yields, causing bond prices to fall.

Economic growth improves corporate earnings, increasing stock investment attractiveness, and tends to shift funds from bonds to stocks.

Government spending and treasury issuance increase bond supply, exerting downward pressure on prices.

( Global Factors

International economic crises or geopolitical instability boost demand for safe assets, sharply increasing U.S. bond demand and prices.

Performance of other asset classes like stocks and real estate also influences bond prices. During stock bull markets, investors tend to shun bonds.

U.S. Bonds vs Stocks vs CFD: Investment Type Selection Criteria

) U.S. Bonds: For Investors Prioritizing Stability

Guarantee fixed interest income with minimal risk of principal loss. However, in low-interest environments, yields are limited. Suitable for retirees or conservative investors needing stable cash flow.

U.S. Stocks: For Growth-Oriented Investors

Subject to significant volatility based on corporate performance and economic outlook, but can offer higher long-term returns than bonds. Favorable for investors with a long-term horizon.

CFD Trading: For Short-term Profit Seekers

Leverage allows for large profits with small capital, but also entails high risk of loss. Suitable for experienced investors with market analysis skills and risk management capabilities.

Exchange Rate Strategies for Korean Investors

U.S. bond investment should consider not only the basic yield but also exchange rate gains. Buying when the dollar is strong and selling when it weakens can generate additional profit. Conversely, exchange rate losses may occur, so careful outlook on currency trends is necessary.

Hedged products(H) block exchange rate risk, suitable for investors who want to purely earn bond yields.

Conclusion: Careful Planning Determines Success

U.S. bond investment is more than just a financial product; it is a core element of a global portfolio. Especially during times of high economic uncertainty, it is a good way to diversify away from won assets and into dollar assets.

However, it is crucial to analyze variables such as interest rates, exchange rates, and inflation comprehensively, and select products aligned with your investment horizon and risk tolerance. If you seek stability, consider short- or mid-term bonds; if you pursue higher returns, consider long-term bonds or currency strategies. Systematic planning and continuous monitoring are the keys to successful U.S. bond investment.