Looking ahead, U.S. Fed policy and the dollar’s path are key drivers. As of May 2025, the Fed has signaled patience: policymakers warned rates will likely stay higher for longer until inflation decisively nears 2% or jobs weakenreuters.com. In late April the Fed notably cited tariff‑driven inflation as a reason to hold rates steadyreuters.com. Markets still price modest rate cuts (the first in June or later), but Fed speakers are wary of fueling further inflation. Thus, U.S. yields may remain elevated near current levels through the summer. In practical terms, that keeps U.S. bond prices pressured (lower) unless inflation unexpectedly collapses.
A bigger question is currency policy. Analysts warn that Trump’s aggressive trade/tariff agenda risks sparking a global currency war. Some investors fear trading partners (EU, China, etc.) may devalue their currencies to offset U.S. tariffs, which would in turn strengthen the dollar. If that happens, U.S. officials could face pressure to let the dollar weaken or even intervene. One strategist notes a “chaotic spiral” could emerge: if others weaken, the Fed might then cut or the U.S. Treasury might sell dollar holdings to weaken itcrowdfundinsider.comreuters.com. Former Treasury chiefs and analysts have observed that Trump’s public attacking of the Fed can seriously undermine confidence: e.g. one Reuters columnist noted the dollar fell ~9% in 2025 (through April) amid these policies – the steepest drop since the 1980sreuters.com. In short, a sustained weaker USD is a real risk if U.S. trade and fiscal policy remain aggressive. (NPR analysts call it “extremely rare” for stocks, bonds and the dollar to fall together – a syndrome evident in April 2025npr.org.) However, most economists emphasize that the Fed will not formally engineer a dollar devaluation: its mandate is inflation and unemployment, not currency levels. For now the median view is: no Fed cut until later 2025, which suggests the dollar may stay firm or recover when U.S. growth holds up.
Global Financial and Bond Market Risks
Several broader risk factors could further impact Treasury bond ETFs:
Global Trade War/Recession. The IMF and other bodies warn that escalating U.S. tariffs have pushed up recession odds (IMF saw U.S. 2025 growth cut to ~1.8%weforum.org and recession odds to ~40%). Prolonged trade tensions could trigger a worldwide slowdown or inflation surge. A U.S. or global recession could paradoxically support U.S. Treasuries (safe haven) – but sudden shocks can also send even Treasuries into a brief selloff (as seen in April’s “dash for cash” rallyreuters.com).
Market Liquidity/Volatility. Recent weeks saw a Treasury market “convulsion”: funds sold long bonds to meet margin calls, sending 10‑year yields ~0.3% higher in two daysreuters.com. An Axios analysis warned this could spiral into a “deleveraging convulsion” with 30y yields briefly above 5%axios.comaxios.com. In other words, if a risk event forces massive liquidations, bond ETFs could suffer disproportionate losses. Market experts note that bond investors were extremely overbought going into the Fed pause – an unusually crowded tradereuters.com. (JPMorgan found net long Treasury positions were at decade highs in mid-March, a contrarian warningreuters.com.)
Debt and Credit Stress. Higher long-term yields raise borrowing costs globally. Emerging markets and heavily indebted firms could struggle, potentially sparking selloffs in their bonds. Indeed, analysts observed frontiers like Pakistan and Sri Lanka saw their bonds plunge on U.S. tariff newsreuters.comreuters.com. A U.S. yield spike above 5–6% could also rattle corporate and mortgage markets, especially if growth weakens.
Geopolitical or Systemic Shocks. War, pandemics or financial system strains (like U.S. debt‑ceiling brinkmanship) could alter flows. In a severe crisis, investors might prefer cash or gold over Treasuries, at least in the short run. Most safe‑haven flows benefit Treasuries, but the unusual 2025 dynamic (dollar also falling) shows anything can happen if confidence is shaken.
In summary, risks are tilted: if the U.S. economy falters or trade war worsens, bonds might eventually rally, but intermediate turmoil could hit ETF prices. As Reuters put it, last week’s bond rout “pointed to shaken confidence” in U.S. assetsreuters.com, even as technical factors (short‑term traders covering, central bank buying) later stabilized yields.
Strategy: Hold, Sell, or Reallocate?
Given these mixed signals, several approaches merit consideration:
Hold and Dollar-Cost-Average (DCA). If you view it as a long-term play on U.S. Treasury yields eventually falling, you might hold or even average down on weakness. U.S. bond yields are now in the 4–5% range – high by recent standards – meaning the ETF yields a healthy ~5% in USD. J.P. Morgan notes that with yields high, investors are “compensated for interest rate risk” and could lock in attractive returnsprivatebank.jpmorgan.comprivatebank.jpmorgan.com. In practice, holding long-term Treasuries can pay off if inflation moderates and the Fed cuts later in 2025. StockFeel analysis similarly points out that if/when rate hikes end, 20‑year Treasuries rebound more strongly than 10‑year ones, favoring a long bond ETFstockfeel.com.tw. (The ETF also pays monthly dividends, which investors can reinvest.)
Sell and Shift to Cash or Short Bonds. Conversely, if you’re concerned the Fed will stay firm and the NTD might remain strong (or even strengthen further), selling to cut losses could be prudent. Cash or TWD assets would avoid further currency drag. If a prolonged U.S. yield climb is likely, even rolling into cash ETFs or high-YTM money-market funds could outperform. Another option is to reallocate to shorter-duration bonds: for example, Taiwan’s U.S. 5–10 year bond ETFs (like 00669B or 00672B) would suffer less from rising yields. Short-term Treasuries have rallied strongly in 2025, reflecting their safety and liquidityreuters.comreuters.com. In fact, some analysts now prefer U.S. short-term bond funds as a safer harbor than long‑duration plays.
Reallocate to Other Asset Classes. Depending on your risk profile, you might switch to non‑USD assets or real assets. For example, investing in Taiwan government bond ETFs (NTD‑denominated) would remove currency risk. Gold or commodity funds are other classic havens if global tensions worsen. Diversification can also mean extending to high‑grade corporates or even equities if expected to recover later.
Importantly, remember that treasury bond ETF is designed for long-horizon, fixed-income investors. As StockFeel notes, its strengths are “Aaa/AAA U.S. Treasuries, stable high dividends, and big rebound potential if rates fall”stockfeel.com.tw. Its risks are precisely the reverse: high interest-rate risk and currency swingsstockfeel.com.tw. Thus, if your original thesis was to earn steady interest and ride out volatility, holding through the current dip might make sense. But if you’re worried about near-term losses, taking partial profits or pausing contributions is also justifiable. Indeed, expert commentary is mixed: Morgan Stanley warns that “longer-dated U.S. Treasury yields [could stay] in a 4–5% range” with limited capital appreciationmorganstanley.com, suggesting caution on duration. By contrast, J.P. Morgan highlights that higher starting yields imply roughly 4–5% returns over the next few yearsprivatebank.jpmorgan.comprivatebank.jpmorgan.com, arguing that now is a reasonable time to allocate to bonds for yield.
Long-term Prospects For Similar Funds
Analysts generally agree that long-term U.S. Treasuries are now yielding much more than in recent years, so expected forward returns are higher than they were. For example, J.P. Morgan’s models imply roughly a 4.7% annualized return over the next 5 years from a broad U.S. bond index, given today’s yieldsprivatebank.jpmorgan.com. Morgan Stanley likewise notes that if Treasury yields remain in the mid-4% range throughout 2025, that would be a significant improvement over 2024’s weak bond performancemorganstanley.com. In other words, absolute returns on 20‑year bonds could be positive (via high coupons), even if capital gains are limited unless yields fall further.
However, experts caution that long-duration positions carry risk. Morgan Stanley explicitly states that “being long duration risk … still does not look overly appealing,” reflecting the chance that growth or inflation surprises could push yields highermorganstanley.com. In fact, as of spring 2025 most strategists still see greater value in shorter bonds or even high-quality corporate debt, given U.S. fiscal deficits and trade uncertainty. On the other hand, if inflation continues to ease and the Fed eventually cuts rates (as many expect by mid–late 2025), long bonds could rally strongly. Historically, a higher starting yield tends to be predictive of higher long-run returns in bondsprivatebank.jpmorgan.comprivatebank.jpmorgan.com, since even a “flat” price can be offset by the coupon income.
In sum, Treasuries and its peers have become attractive yield instruments but remain sensitive to policy shifts. Over the medium term, many analysts forecast modest total returns (coupons plus price change) of a few percent per year if yields normalize around 4–5%. A full return to capital gains would require meaningful Fed easing or a flight‑to‑quality, both of which are possible but not certain. As one fund manager put it, if U.S. yields climb back to ~3.6% (their level in mid-2022), long-bond ETF investors should “consider exiting” to avoid lossescw.com.tw. Conversely, some advisors now view dips in U.S. bond ETFs as buying opportunities for their high yields (especially right before ex-dividend dates)udn.com.
Bottom line: The sudden crash in Treasuries reflects unique local currency moves combined with global bond-market stress. Going forward, if U.S. rates ease and/or trade tensions abate, 20-year bond ETFs could recover. But if U.S. policy keeps rates high or the USD weakens sharply, they may languish. Investors should weigh these factors: holding the ETF can lock in high coupon income over time, but it remains a volatile asset in the current climate. Balancing one’s portfolio – for example by mixing shorter-duration bonds or other asset classes – is a prudent way to manage the risk.
Sources: Taiwan market reports and analystsftnn.com.twcmnews.com.tw; Reuters and financial media on global tariffs, Fed policy and market movesreuters.comreuters.comreuters.comreuters.comreuters.com; investment firms’ outlooks (Morgan Stanley, JPMorgan)morganstanley.comprivatebank.jpmorgan.comprivatebank.jpmorgan.com; and other commentary on fixed-income marketsreuters.comaxios.comnpr.org.
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