20-Year Treasury Yield at 5.20%, Risks in Cash Flow for Loan Purchases

The yield on the 20-year U.S. Treasury bond remains in the 5% range, drawing renewed attention to arbitrage strategies. As of August 20, the yield stands at 5.20%, while mortgage rates in Taiwan are forming between 2.2% and 2.6%, leading to an increase in trades aimed at capitalizing on the interest rate differential. However, cash flow and exchange rate fluctuations can impact the profit structure. The yield to maturity on the 20-year U.S. Treasury bond was 5.239%, but the coupon rate is about 5.125%, meaning actual cash inflows vary depending on interest payments. In transactions using loans, mismatches between interest payment cycles and loan repayment cycles can create cash flow pressures. Additionally, exchange rate fluctuations act as a significant variable, making it difficult for Korean investors to avoid currency risk when holding both won and dollar assets simultaneously. The successful bid yield for the 20-year bond auction on August 19 was 5.204%, with a bid-to-cover ratio of 2.53 times. Long-term interest rates are at a high level, and in a borrowing investment structure, the coupon rate, repayment cycle, and exchange rate interact together.

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