The Possible Return of U.S. Treasuries as the “King” of Safe Assets
Diverging Safe Havens: Gold vs. U.S. Treasuries Rethinking U.S. Treasury Covered Call Strategies
The so-called “debasing trade”—an investment strategy designed to hedge against the erosion of currency value—has emerged as a central theme in today’s markets. Expanding government fiscal spending and expectations of monetary easing by central banks are driving capital flows into equities, Bitcoin, and gold.
In particular, demand for gold and gold-linked investment products has surged. This reflects a powerful combination of inflation protection and gold’s long-standing role as a safe-haven asset.
In contrast, investment products based on U.S. Treasuries—traditionally considered the ultimate safe asset—are moving in the opposite direction. Mounting fiscal deficits in major economies such as France, the United Kingdom, and the United States have undermined confidence in government bonds, while inflation concerns have diminished their appeal as a haven. Although the U.S. Federal Reserve cut its policy rate five times starting in September 2024, the yield on the 10-year U.S. Treasury has remained in the 3.5%–4.5% range over the past three years. Investors’ patience appears to be wearing thin, contributing to steady outflows from U.S. Treasury ETFs.
Many investors seem determined to look past the increasingly polarized economic reality. The boom in AI-related investments and record highs in equity markets have made it harder to confront growing sources of risk.
One of the most notable warning signs is credit card delinquency. According to the New York Fed, the share of credit card balances more than 90 days delinquent reached 12.27% in the second quarter—the highest level since 2011. In South Korea, credit card delinquency rates also hit a decade high in the first half of this year, signaling rising credit risk among lower-income households.
On the 16th, JPMorgan CEO Jamie Dimon voiced concern over these developments. He warned that troubles in private credit at U.S. regional banks, along with recent bankruptcies of auto lenders and auto parts suppliers such as Tricolor Holdings, could represent “early signs of credit stress.”
From a macroeconomic perspective, the most critical data point going forward is U.S. employment. Released on the first Friday of every month, the latest report was skipped due to a U.S. government shutdown.
If upcoming employment data come in weaker than expected, fears of an economic slowdown could begin to weigh on asset prices. That would open the door to a potential revival in the popularity of bonds as safe assets.
What options are available in the Korean market? Of the 38 domestic ETFs linked to U.S. Treasuries, 16 carry the label “30-year U.S. Treasury.” By market capitalization, these account for 76% of all U.S. Treasury ETFs. In practice, most hold portfolios of Treasuries with maturities of 20 years or longer, with an effective duration—adjusted for cash flows—of around 17 years.
Korean investors favor long-duration bonds because longer duration increases the potential gains from falling interest rates. However, multiple variables are at play. Rising inflation expectations or heavy issuance of government bonds could keep long-term yields range-bound even if policy rates are cut. In such a scenario, bond prices may simply fluctuate within a narrow band for an extended period.
When it is difficult to expect a clear price trend in the underlying asset, a covered call strategy—selling call options to generate income—can be an attractive alternative. This approach prioritizes monthly distributions over capital gains from price appreciation.
Currently, four U.S. Treasury covered call ETFs are listed in the Korean equity market. SOL U.S. 30-Year Treasury Covered Call (Synthetic) (473330) and RISE U.S. 30-Year Treasury Covered Call (Synthetic) (472830) allow investors to participate in up to 2% of monthly price movements in long-term U.S. Treasuries, from the third Friday of one U.S. options expiration month to the third Friday of the next, while paying monthly distributions.
TIGER U.S. 30-Year Treasury Covered Call Active (H) (476550) sells call options on only 30% of net assets to generate monthly income, while the remaining 70% tracks the price movement of long-term U.S. Treasuries. KODEX U.S. 30-Year Treasury Target Covered Call (Synthetic H) (481060) sets a target monthly distribution in advance and adjusts the call option exposure accordingly.
Ultimately, the choice comes down to this: whether to favor a safe asset that pays no income but offers potential price appreciation, such as gold, or an asset that prioritizes monthly income over price gains, such as U.S. Treasury covered call strategies.