Taiwan's Record $295 Billion Bet on U.S. Bonds: A Vote of Confidence in Turbulent Times?

The Taiwan Central Bank’s recent reaffirmation of its faith in U.S. Treasury bonds—described as “very good” by its head of foreign exchange, Eugene Tsai—comes amid a backdrop of geopolitical tensions and shifting global economic dynamics. The central bank’s actions, not just words, underscore this confidence: Taiwan’s holdings of U.S. Treasuries hit a record $295 billion in February 2025, a $4 billion monthly increase and a $37 billion year-over-year surge. This bold move positions the island nation as one of the largest foreign holders of U.S. debt, defying headwinds from the U.S.-China trade war and broader macroeconomic uncertainties.

The Yield Advantage: Why U.S. Bonds Remain Magnetic

The data reveals a clear yield-driven rationale behind Taiwan’s purchases. The 10-year U.S. Treasury yield stood at 4.28% in early 2025—far outpacing the paltry returns of other major economies like Germany (2.51%), Japan (1.20%), and Canada (3.08%). This spread isn’t trivial for institutional investors: higher yields mean better returns, even when adjusted for currency risks.

The allure of U.S. debt isn’t limited to Taiwan. Foreign investors collectively added $290 billion to their U.S. Treasury holdings in February 2025—the second-largest monthly inflow since 2011. This global buying spree reflects a universal calculus: the U.S. remains the deepest, most liquid bond market, and its yields still offer a rare combination of safety and return.

Geopolitical Crosscurrents: Risks vs. Reward

Taiwan’s decision isn’t without risks. As a U.S. ally in the Pacific, its financial ties to Washington could heighten geopolitical exposure—particularly given China’s ongoing military posturing. Beijing has even floated the idea of using its own Treasury holdings as a “financial weapon” in disputes. Yet Taiwan’s central bank has chosen to double down, treating U.S. bonds as both a safe haven and a yield-driven investment.

This strategy hinges on two assumptions: first, that the U.S. government’s creditworthiness remains unshaken, and second, that the dollar’s reserve-currency status persists despite trade frictions. The central bank’s explicit denial of default risk on U.S. Treasuries signals a bet that these assumptions hold true—even as the U.S.-China relationship sours.

The Broader Trend: Central Banks as Yield Seekers

Taiwan’s actions mirror a global shift among central banks. With developed economies like Japan and Europe mired in negative or near-zero rates, institutions are forced to chase yield, even in politically charged environments. For example:
- Euro Area holdings: Added $83 billion in February 2025 to U.S. Treasuries, leveraging the dollar’s stability.
- Japan: Despite its own aging debt, Tokyo’s investors poured $112 billion into Treasuries over the same period, drawn by the 4.28% U.S. yield versus Japan’s 1.20%.

In this landscape, Taiwan’s $295 billion stake isn’t just a vote of confidence—it’s a necessity. With its domestic yields and economic growth lagging, the central bank has few alternatives for high-quality, liquid assets.

Conclusion: Safety in a Volatile World

Taiwan’s record Treasury holdings underscore a paradox of modern investing: even as geopolitical risks rise, the U.S. bond market remains the ultimate refuge. The numbers speak plainly: $295 billion isn’t just a figure—it’s a strategic choice to prioritize yield and safety over short-term volatility.

The central bank’s confidence is further cemented by data showing that U.S. Treasuries have historically outperformed during crises. For instance, during the 2020 pandemic sell-off, Treasuries rallied as investors fled equities, proving their “flight-to-quality” appeal. With Taiwan’s holdings now at an all-time high, the bet is that this pattern will hold.

Critics might argue that Taiwan is overexposing itself to U.S.-China tensions, but the reality is this: in a world of dimming investment options, the U.S. Treasury market is still the best game in town. For now, Taiwan—and its global peers—are playing to win.