Taiwanese Investors Flee US Bond ETFs as Currency Risks Mount

Taiwanese investors are unloading their holdings in US-focused exchange-traded bond funds at the quickest pace since the onset of the Covid pandemic, highlighting a “Sell America” momentum that may further boost the island’s currency.

Such products listed in Taiwan — Asia’s most active bond ETF market — have seen about $3.3 billion of outflows so far this year, according to Bloomberg-compiled data. It’s the largest half-year withdrawal since 2020 and outpaced other Asian markets, the data show.

Concerns over US Treasury volatility — driven by fiscal uncertainty and Donald Trump’s unpredictable trade stance — alongside a sharp rally in the Taiwan dollar are prompting investors to pull back, analysts say. The retreat underscores waning confidence in US policy, and points to a reversal in capital flows that could ripple through currencies.

“Once the TWD stability came into question and the sentiment moved to expect more greenback weakness, this would naturally reduce the attractiveness of US bonds for Taiwan local investors,” said Lynn Song , chief economist for Greater China at ING Groep NV.

Taiwan is the biggest buyer of bond ETFs in the Asia Pacific, with a bulk of their $92 billion assets invested in US sovereign and company notes. Partly as a result of the outflows, the value of the island’s entire bond ETF market has declined by NT$400 billion ($13.8 billion) as of May this year, according to Bloomberg’s calculations based on the latest industry data.

The local ETFs tracking US bonds recorded three consecutive months of outflows through April, followed by a modest rebound in May before redemptions resumed in June, Bloomberg-compiled data show. Shares of Taiwan’s biggest US bond ETF has fallen nearly 13% since the start of the year.

Retail investors who dominate the ETF market may be particularly hit as they “leveraged on their mortgages as they face margin calls and are forced to redeem,” said Lemon Zhang , an FX strategist at Barclays Bank.

That outflows in Taiwan are more acute than other Asian markets such as Japan, South Korea and Hong Kong is partly due to the island’s retail-heavy investor base, Ryan Chang , a fixed income portfolio manager at CTBC Investments Co. in Taipei, said. They tend to react more sharply to market swings than central banks or large institutions, he said.

“On top of that, the recent local currency appreciation has eroded the value of Taiwanese investors’ US bond holdings,” he said.

The pullback marks a stark reversal from last year’s , when investors poured into the funds in search of higher yields and bond price gains amid expectations for Federal Reserve rate cuts.

If the exodus in Taiwan’s bond ETFs continues, it will add pressure on the export-dependent island’s currency to strengthen further against the dollar.

Last month, Taiwan’s currency notched its biggest single-day gain since the 1980s, and its 13% gain this year tops all other Asian peers. The sharp swings are generating concerns for Taiwan’s export sector and the life insurance industry with massive exposure to dollar-denominated assets.

This withdrawal from US bonds “removes selling pressure on TWD for foreign currency and in turn supports the local currency’s appreciation,” ING’s Song said.