How to Trade US Treasury Bonds: A Complete Analysis from Beginner to Advanced Strategies

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You can easily start trading U.S. Treasuries by following these steps: select the appropriate type of Treasury, open a brokerage account, place a purchase order, and continuously monitor market trends. The U.S. Treasury market is vast, with high participation from global investors:

U.S. Treasuries are suitable for investors seeking stable returns, but you need to understand the following risks and benefits:

• U.S. Treasuries carry interest rate risk and credit risk.
• When interest rates rise, bond values decline.
• Demand for newly issued Treasuries may weaken, leading to increased price volatility.
• Compared to other fixed-income products, the attractiveness of U.S. Treasuries has declined.

Key Takeaways

• Understand the different types of U.S. Treasuries, including Treasury bills, notes, and bonds, and choose the type that aligns with your investment goals.
• When opening a brokerage account, prepare the required personal information and documents to ensure smooth transactions.
• Monitor market trends, regularly check interest rates and inflation, and adjust your investment strategy promptly to protect your assets.
• Use a bond ladder strategy to diversify investments, reduce risk, and achieve predictable cash flow.
• Choose appropriate trading channels, such as direct purchases, brokerage firms, or ETF investments, to flexibly respond to market changes.

U.S. Treasury Trading Process

Main Steps

You can systematically complete the process of trading U.S. Treasuries by following these steps:

1. Understand the different types of U.S. Treasuries, including Treasury bills, notes, and bonds. Each type has different maturities and yields, suitable for different investment goals.
2. Decide whether to purchase newly issued Treasuries or existing ones in the secondary market. Newly issued Treasuries are typically obtained through periodic auctions by the U.S. Treasury, while the secondary market allows trading at any time.
3. If you choose newly issued Treasuries, pay attention to the Treasury’s auction schedule. You bid during the auction, and the final price and yield are determined by market demand.
4. If you opt for the secondary market, you can obtain real-time quotes through brokerage firms or platforms to understand the price you’ll pay and the expected yield.
5. Open a brokerage account. You need to prepare the following documents:

   Requirement	Description
   Taxpayer Identification Number	Social Security Number for individuals
   U.S. Address	A recorded U.S. address
   Checking or Savings Account	Account and routing numbers required
   Email Address	For example: YourName@abc.com
   Web Browser with 128-bit Encryption	Must use a browser supporting 128-bit encryption

6. Place an order to purchase U.S. Treasuries through platforms (such as U.S. brokerage firms or the U.S. Treasury website). You can also invest indirectly through mutual funds or ETFs.
7. The settlement cycle for trades is T+1, meaning settlement is completed on the next business day after the trade. You can gain ownership of the Treasuries more quickly.
8. After purchasing, continuously monitor market interest rates, inflation, and U.S. Treasury announcements to adjust your investment strategy promptly.

Tip: When trading U.S. Treasuries, be mindful of common pitfalls. For example, don’t overlook interest rate risk and inflation effects, and understand the tax treatment of different Treasuries. Before investing, it’s advisable to learn the basics to avoid losses due to lack of information.

Common beginner mistakes include:

• Not understanding interest rate risk: When market rates rise, Treasury prices decline.
• Assuming all bonds are government-backed: Only U.S. Treasuries have the highest credit rating; other bonds may carry default risk.
• Ignoring tax implications: Different Treasuries have different tax treatments, affecting actual returns.
• Overlooking inflation effects: Inflation reduces the real purchasing power of bonds.
• Ignoring reinvestment risk: When reinvesting at maturity, interest rates may be lower.
• Ignoring opportunity costs: Investing in Treasuries may mean missing out on higher-yield opportunities.

Trading Channels

You can trade U.S. Treasuries through various channels, each with different processes and costs. The table below compares the main channels:

If you choose the U.S. Treasury’s website (TreasuryDirect), you can directly purchase newly issued Treasuries, avoiding intermediary fees. You can also trade existing Treasuries in the secondary market through U.S. brokerage firms or U.S. stock accounts at licensed Hong Kong banks, offering greater flexibility. For investors with smaller capital or those seeking simplified processes, ETFs are a convenient option, allowing participation in the U.S. Treasury market with a lower threshold.

Different trading channels have varying settlement speeds. Since May 28, 2024, most U.S. Treasury trades use a T+1 settlement cycle, meaning funds and bonds are delivered on the next business day after the trade. This change improves trading efficiency and allows you to adjust your portfolio more quickly.

U.S. Treasury Basics

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Definition

You can understand U.S. Treasuries as debt instruments issued by the U.S. federal government. The U.S. Treasury periodically issues Treasuries to raise funds from the market. When you purchase a U.S. Treasury, you are essentially lending money to the U.S. government, which promises to repay the principal and interest at a future date. U.S. Treasuries come in various types, including short-term Treasury bills (T-bills), medium-term Treasury notes (T-notes), and long-term Treasury bonds (T-bonds). These Treasuries are denominated in U.S. dollars, highly liquid, and accessible to global investors.

Characteristics

U.S. Treasuries have several notable characteristics. First, they have an extremely high credit rating, backed by the full faith and credit of the U.S. government, making default risk minimal. Second, Treasury maturities are flexible, ranging from a few months to 30 years, allowing you to choose a suitable term based on your financial needs. Third, Treasuries offer stable returns with clear interest payment structures. Long-term Treasury bonds (T-bonds) typically pay fixed interest semi-annually, offering higher yields but greater interest rate risk. Short- and medium-term Treasuries (T-bills, T-notes) have lower interest rate risk and relatively lower returns. You can refer to the table below to understand the main differences between U.S. Treasuries and other government securities:

U.S. Treasuries also offer high liquidity, allowing you to buy and sell in the secondary market for flexible capital turnover. Their tax treatment is relatively favorable, subject to federal tax but typically exempt from state and local taxes.

Suitable Investors

U.S. Treasuries are suitable for investors with low risk tolerance seeking stable returns. If you prioritize capital safety or need regular interest income, U.S. Treasuries are a good choice. Different types of Treasuries suit different investment goals. For example, T-bills are ideal for conservative investors needing short-term liquidity; T-notes suit investors seeking medium-term income; and T-bonds are suitable for long-term planners. If you’re concerned about inflation, you can choose TIPS (Treasury Inflation-Protected Securities) to preserve purchasing power. The table below can help you quickly determine which Treasury suits you:

You can flexibly choose the appropriate U.S. Treasury type based on your risk tolerance and financial arrangements. U.S. Treasuries provide a safe and stable foundation for your investment portfolio.

Treasury Types

U.S. Treasuries are primarily divided into three categories: Treasury bills (T-bills), Treasury notes (T-notes), and Treasury bonds (T-bonds). You can choose the appropriate type based on your investment horizon and yield requirements. The table below summarizes the maturities and key characteristics of the main Treasuries:

Treasury Bills

If you prefer short-term investments, you can choose Treasury bills (T-bills). T-bills have maturities ranging from a few days to one year, suitable for investors with high liquidity needs. T-bills are issued at a discount, and at maturity, you receive the face value, with the difference being your return. T-bills have the following characteristics:

• High safety, backed by U.S. government credit.
• High liquidity, easy to buy and sell in the secondary market.
• Interest income is exempt from state and local taxes but subject to federal tax.
• Returns are typically lower than long-term Treasuries and may not outpace inflation.
• Suitable for short-term cash parking or avoiding market volatility.

Treasury Notes

If you seek medium-term returns, you can consider Treasury notes (T-notes). T-notes have maturities of 2 to 10 years, with yields higher than T-bills. T-notes pay fixed interest semi-annually and return the principal at maturity. T-notes offer the following advantages:

You can achieve stable medium-term cash flow through T-notes, suitable for those with medium-term financial goals.

Treasury Bonds

If you have long-term investment plans, you can choose Treasury bonds (T-bonds). T-bonds have maturities exceeding 10 years, up to 30 years. T-bonds pay interest semi-annually, suitable for locking in long-term returns. T-bonds have the following characteristics:

• Suitable for long-term capital allocation, with higher interest rate risk.
• Yields are typically higher than T-bills and T-notes.
• Suitable for long-term goals such as pensions or education funds.

Friendly Reminder: You can also consider TIPS (Treasury Inflation-Protected Securities), whose principal adjusts with inflation, suitable for investors concerned about declining purchasing power. The variety of U.S. Treasuries allows you to choose flexibly based on your needs.

U.S. Treasury Trading Channels

You can participate in trading U.S. Treasuries through various channels, each suited to different investor types with varying processes and convenience. Below are detailed explanations of the three main channels: direct purchase via the Treasury website, brokerage firms, and ETF investments.

Direct Purchase via Treasury Website

If you want to purchase U.S. Treasuries directly, you can use the U.S. Treasury’s official website, TreasuryDirect. This channel is ideal for individuals or institutions looking to avoid intermediary fees and trade directly with the U.S. Treasury. You need to meet the following conditions to open an account:

• You must be at least 18 years old and have full legal capacity.
• You need a valid Social Security Number (SSN).
• You need a U.S. address.
• You must have a deposit account at a U.S. financial institution that accepts Automated Clearing House (ACH) payments.
• For entity accounts, an Employer Identification Number (EIN) is required.

After opening an account, you can follow these steps to trade U.S. Treasuries:

1. Log in to your TreasuryDirect account.
2. Click the BuyDirect tab at the top of the page.
3. Select the type of Treasury you want to purchase and submit.
4. Under registration information, select the desired registration.
5. Enter the purchase amount (minimum $100, maximum $10,000,000, in increments of $100).
6. Select the funding source.
7. Submit the order.
8. Confirm the information on the purchase review page.

Purchasing through the website allows you to participate directly in new Treasury issuances, avoiding intermediary costs with lower fees. You can also view your holdings and transaction history at any time, making investment management more transparent.

Tip: Direct purchase is suitable for long-term holders seeking low costs and high transparency. If you’re unfamiliar with the English interface or the U.S. financial system, it’s recommended to familiarize yourself with the process in advance.

Brokerage Firms

You can also trade U.S. Treasuries in the secondary market through U.S. brokerage firms or U.S. stock accounts at licensed Hong Kong banks. This method suits investors who want flexibility in buying and selling to capitalize on market opportunities. You can obtain real-time Treasury quotes and choose the right time to buy or sell. Trading U.S. Treasuries through brokerage firms has the following pros and cons:

After opening a brokerage account, you can place orders directly through trading software, similar to trading U.S. stocks. You can also set stop-loss or take-profit orders to manage risks flexibly. Most brokerage firms support T+1 settlement, ensuring fast delivery of funds and bonds. Note that some brokerage firms may charge transaction commissions or account management fees, with specifics depending on the platform’s announcements.

Note: When trading U.S. Treasuries through brokerage firms, prices are influenced by market supply and demand, which may differ from new issuance prices. You need to monitor market interest rate changes and adjust your investment strategy accordingly.

ETF Investments

If you have limited capital or prefer a simplified trading process, you can invest in U.S. Treasuries through ETFs (exchange-traded funds). ETFs are listed on U.S. stock exchanges, allowing you to trade them in real-time like stocks. ETFs are typically managed by fund companies, with portfolios containing multiple U.S. Treasuries to diversify risk. The table below compares the key differences between purchasing individual Treasuries and investing through ETFs:

Investing through ETFs allows you to participate in the U.S. Treasury market with a lower threshold, eliminating complex account opening and order processes. ETFs are suitable for investors seeking diversification, liquidity, and ease of operation. You can choose ETF products with different maturities and types based on your risk tolerance and financial arrangements.

Friendly Reminder: ETF prices fluctuate with the market, and their net value may be lower than the actual value of holding Treasuries. When selecting ETFs, consider the fund’s management fees, liquidity, and historical performance.

Through these three channels, you can flexibly choose the most suitable way to trade U.S. Treasuries based on your needs. Whether through direct purchase, secondary market trading via brokerage firms, or ETF investments, you can achieve stable asset allocation and risk management.

Returns and Risks

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Sources of Returns

When trading U.S. Treasuries, you can earn two main types of returns:

• You will receive fixed interest payments periodically, typically paid semi-annually. You can use these coupon payments as a stable cash flow.
• If you buy Treasuries at a discount in the market and sell them at a higher price, you can earn capital gains. This approach suits flexible operations during interest rate changes.

These two return sources allow you to enjoy both long-term stable income and opportunities for asset appreciation through market timing.

Types of Risks

When investing in U.S. Treasuries, you need to understand different types of risks. The table below summarizes the main risks and their impacts:

You can mitigate these risks by diversifying investments and monitoring market trends.

Impact of Market Interest Rates

Market interest rate changes directly impact U.S. Treasury prices and returns. You can refer to the table below to understand the relationship between interest rates and bond prices:

When trading U.S. Treasuries, you should closely monitor market interest rates and economic data, adjusting your investment strategy promptly to protect your assets.

Investment Strategies

Bond Ladder

You can diversify the risks of investing in U.S. Treasuries through a “bond ladder” strategy. A bond ladder involves spreading investments across Treasuries with different maturities, creating a portfolio with staggered maturity dates. This approach offers several benefits:

• You can achieve predictable cash flow, as bonds mature periodically, facilitating financial planning.
• When interest rates rise, maturing principal can be reinvested in higher-yielding new Treasuries; if rates fall, you still hold longer-term, higher-yield bonds.
• This strategy smooths returns, reducing the impact of a single interest rate environment on your overall investment.

You can build your bond ladder by following these steps:

1. Determine the investment horizon you want to cover, such as 2, 5, or 10 years.
2. Select U.S. Treasuries with different maturities and allocate investment amounts for each term.
3. Choose suitable Treasury types based on the current yield curve and interest rate levels.
4. Regularly review your portfolio and adjust as needed based on market changes.

Tip: Holding bonds to maturity avoids additional costs from frequent trading, and at maturity, you can flexibly decide how to reinvest the principal.

Asset Allocation

U.S. Treasuries play a crucial role in diversified asset allocation. You can use Treasuries as a “stabilizer” in your portfolio to reduce overall volatility. The table below shows the historical performance of different asset classes:

Over the past 40 years, bond volatility has been only a quarter of that of stocks. Although Treasuries offer lower average annual returns than stocks, they provide protection during adverse market conditions. You can leverage the changing correlation between Treasuries and stocks to optimize asset allocation, balancing returns and risks. Some investment advisors also use techniques like yield stacking to further enhance portfolio diversification and inflation resistance.

When allocating assets, you can adjust the proportion of U.S. Treasuries based on your risk tolerance and investment goals to create a more robust portfolio.

When trading U.S. Treasuries, you should first clarify your investment goals and risk tolerance. Pay attention to the following points:

• Understand Treasury types, maturities, interest payments, and tax implications.
• Set an investment timeline and choose suitable channels and accounts.
• Regularly monitor and rebalance your portfolio to align with your goals.
• Avoid overlooking interest rate changes and opportunity costs, and develop a clear investment plan.

Continuous learning about market changes and flexible strategy adjustments will help achieve long-term stable returns.

FAQ

What is the minimum purchase amount for U.S. Treasuries?

When purchasing U.S. Treasuries through TreasuryDirect, the minimum amount is $100. Purchases must be in increments of $100. For ETF investments, the minimum depends on the ETF’s market price.

Can mainland Chinese residents directly purchase U.S. Treasuries?

You cannot open a TreasuryDirect account directly. You can participate in U.S. Treasury investments indirectly through U.S. stock accounts at licensed Hong Kong banks or international brokerage firms.

How is interest on U.S. Treasuries paid?

When holding T-notes or T-bonds, you receive interest semi-annually. T-bills pay principal and interest at maturity. ETFs distribute returns according to the fund’s dividend rules.

What taxes apply to trading U.S. Treasuries?

You need to pay U.S. federal tax. U.S. Treasury interest is typically exempt from state and local taxes. Capital gains from ETF sales also require tax reporting.

Can U.S. Treasuries be sold early?

You can sell U.S. Treasuries in the secondary market at any time. Prices fluctuate based on market interest rates and supply-demand dynamics. ETFs can also be sold during trading hours.

By unraveling the full guide to trading U.S. Treasuries, you’ve learned direct purchases via TreasuryDirect to indirect ETF exposure, but high cross-border fees, currency volatility, and complex account setups can limit swift bond ladder builds or interest rate responses, especially during Fed policy shifts or inflation data releases. Imagine a platform with 0.5% remittance fees, same-day global transfers, and zero-fee limit orders, enabling seamless Treasury strategies via one account?

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