[비즈한국] Choi Sang-mok, Deputy Prime Minister and Minister of Economy and Finance, reported last year that he held approximately 197.12 million KRW worth of 30-year U.S. Treasury bonds. This sparked criticism, as some argued that the head of the economy, who is responsible for stabilizing the exchange rate, had invested in an asset that gains value as the Korean won depreciates.
On the 16th, during a hearing at the National Assembly's Legislation and Judiciary Committee regarding the "Impeachment Motion against Minister of Economy and Finance Choi Sang-mok," Deputy Prime Minister Choi explained, "The purchase was made based on the recommendation of a financial institution, and I failed to thoroughly review the portfolio composition," adding, "It is regrettable that I caused a misunderstanding due to a personal matter."
Regardless of the ethical controversy regarding how a policy official manages their assets, this case aligns with the recent trend of growing interest in U.S. Treasury bonds among domestic high-net-worth individuals. As analyses suggesting that interest rates have passed their peak spread, more investors are contemplating the right timing for investing in long-term government bonds.
The profit structure of bond investment is largely twofold. One is the periodic interest income (coupon rate), and the other is capital gains or losses. Capital gains or losses occur when a bond is sold before maturity, and bond prices can rise or fall depending on changes in market interest rates. For example, if market interest rates fall, the attractiveness of existing high-interest bonds increases, causing their prices to rise; conversely, if rates rise, prices fall, leading to losses.
In particular, bonds with longer maturities, such as U.S. Treasury bonds, see their prices move more significantly in response to interest rate changes. This is measured by an indicator called "Duration," which signifies the sensitivity of a bond's price to interest rate changes. The longer the duration, the greater the potential for profit, but the risk increases accordingly.
On top of this, the exchange rate acts as a variable. Investing in U.S. Treasury bonds also has the effect of investing in dollar-denominated assets. If the exchange rate rises (depreciation of the won), one can realize foreign exchange gains. However, conversely, even if interest and principal are returned in dollars at maturity, losses could occur if the exchange rate falls (appreciation of the won). In other words, it is a complex investment that requires simultaneous consideration of both interest and exchange rates.
Experts consider U.S. Treasury bonds a representative safe-haven asset during periods of economic slowdown or declining interest rates. When the economy declines, market uncertainty increases, causing funds to flee risky assets and pour into safe assets. In this process, demand for U.S. Treasury bonds often increases, driving up prices. Long-term bonds, in particular, benefit more from interest rate drops, making them stand out as an advantageous investment when the possibility of rate cuts is expected, as is currently the case.
Furthermore, because U.S. Treasury bonds are issued by the national government, there is virtually no credit risk. They are available in a variety of terms, ranging from short-term bills of less than one year to ultra-long-term bonds of 30 years or more, allowing investors to choose based on their operational objectives and time horizons.
There are also differences compared to regular time deposits. While you cannot receive the full promised interest if you cancel a deposit early, you can earn profits on bonds simply by selling them midway if market conditions are favorable. Of course, there is always a possibility of loss if one misjudges interest rate or exchange rate trends.
There are two main ways to invest in U.S. Treasury bonds. One is to purchase the bonds directly through a securities firm, and the other is indirect investment through ETFs (Exchange Traded Funds) or bond funds.
Direct purchase has relatively low commissions, and one can transparently manage the profit structure while holding the bonds. However, it requires an understanding of basic concepts such as duration, interest rates, exchange rates, and liquidity. ETFs or funds are managed by professionals, but the fees are relatively higher, and the profit structure varies depending on whether or not they are currency-hedged.
For instance, currency-hedged funds can reduce the risk of exchange rate fluctuations, but the opportunity for foreign exchange gains also disappears. On the other hand, non-hedged funds can offer expected profits when the exchange rate rises, but can turn into a loss if the won strengthens. You must adjust your strategy according to your investment inclination.
U.S. Treasury bonds are clearly assets with high stability and predictability. In particular, if interest rates are expected to decline following a high-interest rate phase, a capital gains strategy utilizing long-term bonds can be effective. However, more important than judging "whether now is the timing" is establishing your own strategy that considers interest rates, exchange rates, taxes, and investment goals. Understanding and preparing for risks must take precedence over simple following of trends.