Want to buy U.S. bonds but can't understand? U.S. bond yields, purchasing methods, and classifications explained clearly all at once

As an investor, you’ve probably heard of U.S. Treasury bonds, but few truly understand them. Especially the concept of U.S. bond yields, which often leaves many novice investors confused. Today, from a practical perspective, we’ll tell you how to choose, how to purchase, and how to calculate returns.

First, understand the basics: What are U.S. Treasury Bonds?

U.S. Treasury bonds (U.S. government bonds) are essentially IOUs from the U.S. government. The government issues bonds to borrow money from the market, promising to repay principal and interest within a specified period. Backed by the credit of the U.S. government, they are considered the lowest-risk investment tools globally and are an important component of institutional and individual asset allocation.

Whether it’s central banks, sovereign funds, or ordinary investors, everyone is eager to hold U.S. Treasury bonds—because they provide stable cash flow and high liquidity.

How are U.S. bonds classified? Find the one that suits you

U.S. Treasury bonds are divided into four main categories based on maturity, each with different characteristics and suitable scenarios.

Short-term Treasury Bills

Maturity: within 1 year (typically issued at 4, 13, 26, 52 weeks) Main feature: issued at a discount, no interest

Buying short-term bonds is like shopping at a discount—you buy a bond with a face value of $100 for $99, and at maturity, you get $100. The difference is your return. This type of product is suitable for investors needing short-term liquidity, with quick turnover and low risk.

Medium-term Treasury Notes

Maturity: 2–10 years Feature: pays interest semiannually, mainstream in the market

Available in 2, 3, 5, 7, and 10 years, with the 10-year U.S. bond often called the “global asset pricing anchor,” and is a key indicator for investors. Why? Because the 10-year yield reflects market expectations for economic outlook—higher rates indicate more pessimism about the future.

Long-term Treasury Bonds

Maturity: 10–30 years Feature: also pays interest semiannually, but with longer duration

Appearing less liquid than short-term bonds, but since they can be traded on the secondary market, buying and selling is not difficult. Usually used for long-term asset allocation, seeking stable long-term cash flow.

TIPS (Treasury Inflation-Protected Securities)

Core mechanism: principal adjusts with inflation

If you’re worried about inflation eroding purchasing power, TIPS are designed for you. They periodically adjust principal based on the Consumer Price Index (CPI). When inflation rises, principal increases; during deflation, principal decreases (but not below the original face value).

For example: buying $1,000 TIPS with a 1% coupon rate, if inflation is 5%, the principal adjusts to $1,050, so the semiannual interest is $10.50 instead of $10—higher inflation means higher interest.

How to buy U.S. bonds? Three methods, each with pros and cons

In Taiwan, ordinary investors mainly have three channels to buy U.S. bonds, each with advantages and disadvantages.

Method 1: Direct purchase of bonds (highest threshold)

Through overseas brokers or domestic brokers’ custodial services to buy issued government bonds. Overseas brokers offer more variety, faster quotes, and lower fees, making them the preferred choice.

Simple process: Open account → search for bonds → place order → hold and receive interest → sell at any time

Note: Minimum purchase is $1,000 (about $991), which is a high threshold for small investors. Plus, there may be commissions, spreads, and deposit/withdrawal fees, adding to costs.

Method 2: Bond funds (moderate threshold)

Buy a basket of bonds instead of a single bond, automatically diversifying risk. Minimum purchase is around $100, but management fees will eat into some returns.

Method 3: Bond ETFs (lowest threshold, highly recommended for beginners)

Like buying stocks, you buy funds with much lower costs than bond funds, and trading is flexible. Popular products include:

• TLT (Long-term bonds over 20 years)
• IEF (Mid-term bonds 7–10 years)
• SHY (Short-term bonds 1–3 years)
• VGSH (Short-term bond index fund)
• TIP (Inflation-protected bonds)
• GOVT (U.S. Treasury aggregate ETF)

What is U.S. bond yield? How to interpret it?

Simply put, yield is the annual return you get from investing in U.S. bonds. It has two concepts:

Current yield = annual interest ÷ current price × 100%

Easy to calculate but inaccurate because it ignores capital gains or losses.

Yield to Maturity (YTM) is what investors truly care about. It considers all cash flows from now until maturity and calculates the actual annualized return.

Good news: you don’t need to manually calculate this complex formula. Ways to view U.S. bond yields include:

• Official data: Updated daily on the Federal Reserve and U.S. Treasury websites
• Market platforms: Investing.com, CNBC, Wall Street Journal, etc.
• Broker platforms: Most brokers can filter specific bonds and display YTM directly

Why should you pay attention to U.S. bond yields?

It’s not just a numbers game. U.S. bond yields reflect investors’ outlook on the economy:

Rising yields → bond prices fall → market expects higher interest rates → economy may overheat or inflation may accelerate

Falling yields → bond prices rise → market expects rate cuts → economy may slow down

Conversely, if you buy bonds now at high yields, locking in returns, this can be advantageous.

Key factors influencing U.S. bond prices and yields

Internal factors: maturity and coupon rate

Longer maturity means higher risk, so bonds are issued at lower prices to attract investors. This determines the initial pricing.

External factors are equally important

Interest rate changes directly impact: When the Fed raises rates, newly issued bonds have higher coupons, making existing bonds less attractive, causing prices to drop. Conversely, when rates fall, prices rise. Recent aggressive rate hikes by the Fed have caused U.S. bond prices to plummet and yields to soar.

Economic conditions matter: During recessions, investors flock to safe assets (U.S. bonds), pushing prices up and yields down. During overheating, the opposite occurs.

Inflation expectations: Rising inflation expectations lead investors to demand higher yields to compensate for loss of purchasing power, causing bond prices to fall.

Supply levels: Excessive issuance of U.S. debt can disrupt supply and demand balance, pushing prices down.

Summary: Who should consider U.S. bonds?

If you’re a conservative investor seeking stable cash flow and low risk, U.S. bonds are an excellent choice. If you have large idle funds and a long-term plan, directly buying bonds is most efficient. For small investors or beginners, bond ETFs allow participation in the U.S. bond market at minimal cost.

The key is to choose suitable U.S. bond products and purchase methods based on your investment cycle, risk tolerance, and capital.