Can you make money buying U.S. bonds? A beginner's guide to understanding U.S. Treasury bond investments from scratch

Many investors are pondering the same question: How can I safely buy U.S. Treasuries? Compared to stock market volatility, U.S. government bonds are favored by conservative investors due to their stability. Today, we will approach from a practical perspective, guiding you step-by-step on how to buy U.S. Treasuries in Taiwan and how to evaluate investment returns.

How can Taiwanese investors get the most value when buying U.S. Treasuries?

In Taiwan, there are three main channels to purchase U.S. government bonds, each with its advantages and disadvantages.

Channel 1: Direct purchase from the secondary market

Buying existing bonds through overseas brokers or domestic brokers via agency trading. Overseas brokers have clear advantages—more variety, faster quotes, and lower fees.

Purchase process:

• Open an international securities account
• Search for bond codes, filter by maturity, yield, etc.
• Place orders at market price or limit price (note the bid-ask spread and commissions)
• After bonds are credited, receive periodic interest payments and can sell on the secondary market at any time

Disadvantages to note: Minimum purchase usually requires USD 1,000, which, at USD 100 per bond, means an actual investment of about USD 991. This threshold is relatively high for small investors and prices can fluctuate with market movements.

Channel 2: Participating through bond funds

Bond funds are like investing in a basket of government bonds, effectively diversifying risk. The minimum investment is lower (around USD 100), but management fees apply. For beginners, this is much more friendly than buying bonds directly.

Channel 3: Bond ETFs — the most flexible option

This is the most convenient way to buy U.S. Treasuries. Bond ETFs trade freely on trading platforms like stocks, with transaction costs much lower than mutual funds, making them especially suitable for small investors.

Common U.S. bond ETFs include:

• TLT — iShares 20+ Year Treasury Bond ETF
• IEF — iShares 7-10 Year Treasury ETF
• SHY — iShares 1-3 Year Treasury Bond ETF
• VGSH — Vanguard Short-Term Treasury ETF
• TIP — iShares TIPS Bond ETF
• GOVT — iShares U.S. Treasury Bond ETF

The comparison of the three methods is straightforward:

For new investors, we strongly recommend starting with bond ETFs.

What types of U.S. Treasuries are there? What are their characteristics?

To choose suitable products, first understand the classification of U.S. Treasuries. They are divided into three main categories based on maturity, plus a special inflation-protected type.

Short-term Treasuries (Treasury Bills) — The liquidity king

Maturities under one year, typically issued at 4, 13, 26, or 52 weeks.

Unique feature: No interest payments; sold at a discount. For example, a short-term Treasury issued at 1% interest is sold at USD 99 for a USD 100 face value, and at maturity, redeemed at face value, earning the difference.

Due to short duration, low risk, and high liquidity, they are especially suitable for investors seeking quick returns over the medium to short term.

Medium-term Treasuries (Treasury Notes) — Mainstream investment

Maturities from 2 to 10 years, commonly issued at 2, 3, 5, 7, or 10 years. Interest paid semi-annually.

Among these, the 10-year U.S. government bond is famously called the—“Global Asset Pricing Anchor,” an important indicator of the bond market. Medium-term bonds have moderate risk and stable returns, making them the current market’s mainstream choice.

Long-term Treasuries (Treasury Bonds) — The preferred choice for stable income

Maturities from 10 to 30 years, usually issued as 30-year bonds, with interest paid semi-annually.

Although the maturity is long, they are actively traded on the secondary market, so liquidity is not poor. Long-term bonds are suitable for investors with long-term funds, locking in higher yields.

TIPS (Treasury Inflation-Protected Securities) — The inflation hedge

TIPS have a unique core mechanism—principal linked to the Consumer Price Index (CPI).

When inflation rises, principal automatically adjusts upward; during deflation, principal adjusts downward but not below the original face value. Interest is calculated on the adjusted principal, so higher inflation results in higher interest.

Example: Buying USD 1,000 face value TIPS at 1% interest. If inflation is 5% that year, principal adjusts to USD 1,050. Annual interest = USD 1,050 × 1% = USD 10.50 (higher than the original USD 10). At maturity, the government repays the higher of the adjusted principal or the original face value.

How is the return on U.S. Treasuries calculated?

Investment returns are expressed in two ways, which investors often confuse. It’s important to distinguish.

Current Yield vs. Yield to Maturity (YTM)

Current yield is simply calculated as: Annual interest ÷ Current price × 100%

But more importantly, YTM — the actual annualized return you will realize if holding the bond until maturity. YTM calculations are complex, considering interest income and capital gains/losses, but fortunately, most trading platforms display YTM directly.

Where to check U.S. Treasury yields?

• Official channels: Federal Reserve or U.S. Treasury websites publish daily yield curves
• Financial platforms: Investing.com, CNBC, WSJ, etc., with real-time updates
• Trading platforms: Many brokers display YTM when screening bonds

A key insight: Bond prices and yields move inversely

This is core to understanding the U.S. bond market. Since cash flows are fixed, higher prices mean lower yields; lower prices mean higher yields. This counterintuitive relationship is crucial.

What influences U.S. bond price fluctuations?

Internal factors: Maturity and coupon rate

Longer maturity and higher risk lead to lower bond prices to compensate for risk.

External factors shaping market trends

Interest rate changes — the most direct influence. When the central bank raises rates, new bonds offer higher yields, causing existing bond prices to fall (as nobody wants to buy lower-yielding bonds). Conversely, when rates fall, existing bonds appreciate. The aggressive rate hikes by the Fed in recent years have been the main reason for the sharp decline in U.S. bond prices.

Economic outlook — During recessions, investors flock to safe assets, increasing demand and prices for government bonds. During economic booms, the opposite occurs.

Inflation expectations — Rising inflation pushes up interest rates, lowering bond prices. Investors fearing erosion of real returns demand higher yields, causing existing bonds to fall.

Supply changes — When the government issues大量 bonds, oversupply can depress prices; less issuance supports prices.

Buying U.S. Treasuries vs. other investment methods, which is more worthwhile?

Compared to CFDs or U.S. stocks, U.S. Treasuries have their pros and cons:

Conclusion: For investors seeking stable allocation and risk avoidance, buying U.S. Treasuries, especially via ETFs, is a wise choice. For those pursuing high returns and willing to accept risks, CFDs offer more flexibility.

Most importantly, choose the method that best matches your risk tolerance and investment horizon. Starting with bond ETFs is the most solid approach.