Long-dated U.S. Treasury yields have continued to rise, and the 20-year Treasury (US20Y) is now yielding about 5.3% to maturity, according to the market pricing cited by ABMedia. With mortgage rates in Taiwan commonly running between 2.2% and 2.6%, the apparent spread of nearly 2.7% has brought the idea of borrowing at a lower rate to buy U.S. government bonds back into focus.
ABMedia argues that the setup may look attractive on paper, but it is not a risk-free arbitrage. The article says investors who focus only on the headline yield can miss the practical issues tied to cash flow, exchange rates and long-duration bond volatility.
Yield to maturity is not the same as cash income
The report draws a distinction between yield to maturity and coupon rate, a point it says many investors overlook. Using the current 20-year U.S. Treasury as an example, ABMedia notes that if an investor puts $10,000 of borrowed funds into the bond, the yield to maturity may reach 5.239%, but the coupon rate is only about 5.125%.
That gap exists because part of the total return comes from buying the bond below par and holding it until redemption. The market price cited in the article is 98.5938, below the face value of 100. The investor only realizes that discount-related gain when the U.S. Treasury redeems the bond at par after 20 years.
During the holding period, the actual cash received is limited to coupon payments of roughly 5.125% of face value each year. In other words, the eye-catching yield figure does not fully translate into immediate income.
The first weak spot: monthly mortgage payments versus semiannual bond coupons
The article says the biggest blind spot in the strategy is cash-flow mismatch. Housing equity loans in Taiwan usually require monthly amortization of principal and interest. That means the borrower must make cash payments every month.
By contrast, U.S. Treasuries generally pay coupons only twice a year. ABMedia says a cash coupon of around 5.125% is not enough to cover the full burden of mortgage principal and interest payments on its own. If the investor does not have enough salary income or other business income set aside as a buffer, cash flow can tighten quickly.
In that situation, the investor may end up selling the bond at a lower price and turning a paper loss into a realized one.
The second weak spot: foreign-exchange exposure
ABMedia also highlights currency risk. In practical terms, the trade means borrowing in New Taiwan dollars and buying a U.S. dollar asset. That adds an exchange-rate layer on top of the rate spread.
If the U.S. dollar weakens by 5% or more against the New Taiwan dollar, the roughly 2% spread earned through the trade can be erased by FX losses. The bond may still be paying in dollars, but the investor’s funding obligation is tied to New Taiwan dollars, and the final outcome depends on both sides of that equation.
That makes the trade much less straightforward than the headline spread suggests.
Long-duration bonds remain highly sensitive to rate moves
The article adds that a 20-year Treasury carries substantial duration risk. Because of its long effective duration, the bond is highly sensitive to changes in interest rates.
If U.S. inflation picks up again or heavy issuance at the long end pushes yields even higher, bond prices could fall sharply. Investors who need to liquidate before maturity would then have to absorb capital losses rather than rely on redemption at par.
That distinction is central to the strategy. Holding to maturity is one thing; being forced to sell early is another.
ABMedia says direct bond holdings are more suitable than local U.S. Treasury ETFs for this approach
ABMedia says using a mortgage top-up to buy U.S. Treasuries is not a guaranteed-win strategy. It says the trade is only suitable for investors with extremely strong operating or salary cash flow, investors who can fully service the mortgage on their own, and investors willing to hold the bond all the way to maturity.
If someone still decides to proceed, the article says buying overseas Treasury bonds directly would be steadier than buying locally listed U.S. Treasury ETFs. The reason given is that a direct bond can be held to maturity and redeemed at face value, which reduces the impact of interim price swings on the final yield outcome.
At the same time, the article notes that the quotes seen in the market are usually best prices between dealers, and single trades are often measured in hundreds of millions of dollars. If a retail investor buys through a broker, execution can be affected by intermediary spreads and liquidity limits, leaving the actual purchase price materially different from the displayed market quote.
ABMedia’s conclusion is narrow and practical: before making the trade, investors need to examine their own cash-flow profile and the long-term direction of the TWD-USD exchange rate rather than focus only on the nominal spread.