Taiwanese Investors Shift Focus: Why the Retreat from US Bond ETFs?

The past decade saw Taiwanese investors pour billions into U.S. bond ETFs, lured by high yields and perceived safety. But in 2025, this trend reversed. Data shows a notable retreat as investors reallocated capital to new strategies, driven by shifting market dynamics, geopolitical risks, and regulatory changes.

The Yield Dilemma: U.S. Bonds Lose Their Luster

U.S. Treasury yields, once a magnet for Taiwanese capital, have faced headwinds. While the 10-year Treasury yield stood at 4.33% in early 2025, rising Taiwanese bond yields and competing fixed-income opportunities eroded the allure of U.S. fixed income. Meanwhile, municipal bond ETFs in the U.S. saw inflows of $659 million amid attractive tax-exempt yields, but this wasn’t enough to offset broader outflows.

Taiwan’s own bond market matured, with reinvestment flows of $35 billion monthly (May–July 2025) boosting demand for local instruments. High-dividend equities and multi-asset strategies, now permissible due to regulatory changes, further diluted interest in U.S. bonds.

Multi-Asset Strategies Take Center Stage

The lifting of restrictions on multi-asset ETFs in July .2024 marked a turning point. Investors now prioritize blended portfolios combining Taiwanese high-dividend stocks (e.g., the FTSE Taiwan Dividend+ Index) with shorter-duration bonds. These strategies, which cap individual asset allocations to 15%, reduce reliance on U.S. fixed income.

The appeal of dynamic yield-weighted indices is clear: they offer higher returns than passive U.S. bond ETFs while mitigating volatility. As one fund manager noted, “Why lock into long-dated U.S. Treasuries when Taiwan’s equities and munis deliver better risk-adjusted returns?”

Currency Risks and Geopolitical Uncertainty

The U.S. dollar’s 18% appreciation against the Taiwanese dollar over three years (as of mid-2024) created a double-edged sword. While past gains were lucrative, fears of a reversal—fueled by the ECB’s rate cuts to 1.75% by Q3 2025—prompted hedging. Taiwanese investors now seek to limit exposure to USD-denominated bonds, especially as trade tensions between the U.S. and China risk destabilizing markets.

Regulatory Shifts and New Investment Vehicles

Taiwan’s push to become an “Asian asset management center” accelerated the shift. The Financial Supervisory Commission’s approval of active ETFs and AI-driven investment tools diverted capital toward innovative products. For instance, defined-outcome ETFs (e.g., buffer ETFs) and thematic funds targeting tech or climate resilience now attract flows once directed to U.S. bonds.

The Data Tells the Story

• ETF Growth Slows: Taiwan’s ETF market, which surged 65% in 2024 to NT$6.4 trillion, faces a 2025 growth rate of just 20–30%. Bond ETFs, once dominant, now face competition from multi-asset and active strategies.
• Trade Policy Impact: The “tariff tantrum” of 2025 saw U.S. high-yield corporates suffer $3 billion outflows weekly, spooking investors who now favor safer regional assets.
• Geopolitical Realignment: “Friendshoring” trends push Taiwanese capital toward Southeast Asia and India, where growth (5.5–6.5%) outpaces the U.S., reducing demand for U.S. fixed income.

Conclusion: A Strategic Rebalance

Taiwanese investors’ retreat from U.S. bond ETFs is no accident—it’s a calculated shift toward diversification and yield optimization. With U.S. bond yields pressured by Fed policies, currency risks mounting, and multi-asset strategies offering better returns, the move makes sense.

The numbers underscore this pivot:
- Taiwanese bond ETF allocations dropped from 48% of total ETF assets in late 2024 to an estimated 35–40% by mid-2025.
- High-dividend equity ETFs now dominate top holdings, capturing 60% of new inflows in Q2 2025.
- Regional credit markets, particularly in Asia, offer 50–100 bps higher yields than U.S. peers with lower default risks.

In this new era of volatility, Taiwanese investors are voting with their wallets—and the message is clear: U.S. bonds are no longer the default choice. The future lies in nimble, diversified portfolios that balance yield, risk, and geopolitical realities.