Last Friday, the United States released its non-farm employment data, revealing a robust addition of 256,000 jobs in September—substantially outperforming market expectations, which had forecasted an increase of only 160,000 jobsThis strong performance has led to a shift in sentiment regarding the Federal Reserve's potential interest rate cuts, leaving many investors reconsidering their strategies in a changing economic landscape.

In reaction to this positive employment report, the yield on the ten-year U.STreasury bond continued to rise, reaching 4.79%. Meanwhile, yields on China's government bonds, particularly the ten-year bonds, lag behind, staying below 1.7%. This widening yield differential between Chinese and U.Sbonds raises questions about investment strategies, particularly the attractiveness of U.STreasuries.

Against this backdrop, many investors are increasingly curious about whether investing in U.S

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Treasuries now could be advantageous, given the higher yieldsThis culminates in an important discussion regarding the viability of such an investment.

Investing in U.STreasuries primarily appeals due to the attractive coupon paymentsWith yields approaching 5%, the prospect of steady income is enticing for those seeking reliable returnsHowever, it is essential to understand that beyond this coupon income, a significant portion of the return from bonds comes from capital gainsCapital gains occur when interest rates fall, which inversely impacts bond prices, leading to potential profit opportunities in the secondary market.

To illustrate, if the Federal Reserve were to cut interest rates in the future, the existing high-yield bonds would become more sought after, increasing in market value—this would effectively translate to capital gains for the holder

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Conversely, the risk remains that if the Fed hikes rates, those gains could evaporate, resulting in capital losses instead.

Last year, there was considerable market speculation that the Fed would decrease rates twice in 2025, but current economic conditions suggest that this outlook might be overly optimisticInsights from the CME’s forecasts indicate that as of January, there stands a staggering 93.1% probability that the Fed will hold rates steadyPredictions extend to a potential cut in June, which, if realized, might represent the only reduction for the entire year.

Under these conditions, it seems improbable that capital gains can be capitalized upon in the first half of the yearAchieving positive returns may hinge more on preventing losses rather than garnering profits.

Additionally, when considering the purchase of U.S

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Treasuries, investors must also account for currency exchange ratesTo invest in U.Sbonds, one must first convert Chinese Yuan into U.SDollarsAny subsequent trip back to Yuan upon redemption will be influenced by fluctuations in the exchange rate, thereby affecting overall returns.

For example, if the Yuan depreciates against the Dollar, investors benefit from favorable exchange rates since they will ultimately receive more Yuan for the same amount of DollarsConversely, if the Yuan appreciates, this could result in reduced returns once the currency is converted back into Yuan.

To drive this point home, let’s consider a specific fund: the Fidelity Global Bond fund, which offers both RMB-denominated (100050) and USD-denominated (007140) sharesThe RMB-denominated share is subject to exchange rate impacts due to the conversion from Yuan to Dollars and back again, while the USD-denominated share directly sidesteps these currency fluctuations.

By examining historical performance across various years, the divergence in returns between these two share classes serves as a clear illustration of currency exchange rates' roles in total returns

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Currently, the Dollar Index remains robust, putting significant depreciation pressure on the YuanNonetheless, the People’s Bank of China is proactive in reassuring that it will maintain currency stability, enacting measures such as adjusting cross-border financing macro-prudential parameters, which recently helped stabilize the offshore Yuan exchange rate around 7.35.

Thus, while there exists a potential avenue for profit in the realm of exchange rates, the magnitude of this opportunity is uncertain and will depend on the evolving situation of the Yuan.

In summary, anyone contemplating investment in U.STreasuries should thoroughly analyze three key factors: coupon payments, capital gains, and exchange rate conditionsFrom our previous discussions, while coupon payments seem secure, capital gains appear unlikely, and exchange rate dynamics are contingent upon future developments.

If, after weighing these three factors, an individual concludes that U.S

Treasuries still represent a worthwhile investment opportunity, then it might be prudent to continue exploring this avenue.

Now, if one decides to venture into investing in U.Sbonds, a pivotal question arises: where can these bonds be purchased? Within China, popular avenues include Hong Kong mutual funds, Qualified Domestic Institutional Investor (QDII) funds, or direct investment in dollar-denominated financial products provided by banksWe shall explore the former two options in detail.

At the beginning of the year, a regulatory amendment allowed for increased sales quotas for mutual funds offshore, leading to a rapid uptake of the newly available investment allocationHowever, the demand has been so high that major mutual funds focused on U.STreasuries—such as E Fund (Hong Kong) Select Bond fund, Southern East Excel Dollar Bonds, and JP Morgan International Bond fund—are currently closed to new investments.

Opportunities in QDII bond funds remain scarce as well

Nevertheless, I have screened a few options that remain open for investments, which I will share for your consideration.

When opting to buy U.STreasury funds, it is crucial to closely examine their underlying asset allocationsThe funds I’ve identified primarily target U.Sbonds, aligning closely with the original investment intent.

Taking the Fidelity Global Bond fund as a case study, its substantial holdings predominantly comprise U.STreasury bills, government bonds, and inflation-protected securities.

In contrast, other QDII dollar bond funds tend to invest heavily in Chinese corporate dollar bondsThese bonds originate from Chinese companies issuing dollar-denominated debt in overseas marketsTherefore, although denominated in dollars, these bonds are subject to intricacies related to the issuing company's creditworthiness and the broader industry outlook, introducing further complexities compared to straightforward U.S