The appreciation of the TWD has knocked down the US bond ETF. If it challenges 27.6 in the second half of the year, how should asset allocation be adjusted?

Last Friday, the New Taiwan Dollar surprisingly hit the 28 level. Vice Premier Cheng Li-chiun led a delegation to the US for negotiations, which went smoothly, and the market anticipates another wave of appreciation for the New Taiwan Dollar. This year, the New Taiwan Dollar has appreciated by 12%, causing significant pressure on outbound businesses and life insurance companies. Debt frogs can no longer withstand foreign exchange losses and are all hastily cutting losses to exit. If the USDTWD challenges the 2021 low point of 27.6 in the second half of the year, how should investors adjust their asset allocation?

Taiwan is facing a large redemption of US bond ETFs.

According to Bloomberg statistics, Taiwanese investors are selling off their US-focused exchange-traded bond funds at the fastest pace since the outbreak of the COVID-19 pandemic. So far this year, approximately $3.3 billion has flowed out of bond ETFs listed in Taiwan. The data shows that this is the largest semi-annual outflow since 2020, and the outflow rate has exceeded that of other Asian markets.

Analysts say that concerns over the volatility of U.S. Treasury bonds and the sharp rise of the New Taiwan Dollar are prompting investors to withdraw their investments.

What is the difference between bonds and bond ETFs? Interest rate cuts will drive bond prices up, so why hasn't my 00679B made any money?

The debt frogs can no longer bear the exchange losses and are all stopping out.

Retail investors who dominate the ETF market may face particularly severe blows, as they "leverage with mortgages, face margin calls, and are forced to redeem."

I still remember two years ago when I had dinner with friends, the hot topic at that time was borrowing low-interest New Taiwan dollar mortgages or personal loans with an interest rate of about 1.5%~2%, buying U.S. Treasury ETF with an interest rate as high as 5%, leveraging to magnify the original spread of about 3%, and coupled with the fact that the New Taiwan dollar was maintaining a depreciating trend at that time, it could almost be said to be a "double gain from bonds and exchange rates."

However, looking at the performance of the Cathay 20-Year U.S. Treasury ETF (00687B), which is commonly purchased by locals, it has dropped by 12% year-to-date. In contrast, with the New Taiwan Dollar appreciating by 12% this year, it can be inferred that although bond prices have remained stable, they have all been dragged down by currency losses! Recently, I've also heard of many clients facing margin calls, being forced to pay additional margin or even redeem their investments. One can imagine the dire situation with blood flowing in the markets recently.

Source: Finance M Square

The data from Bloomberg shows an outflow of 3.3 billion USD, which I believe is merely a small factor accelerating the appreciation of the TWD, rather than the main cause.

With two brokers, Taipei Forex and Yuanta Forex, the average daily trading volume for USDTWD ( USD to TWD ) is approximately 2 billion USD, while 3.3 billion USD is not considered a large amount, and it is spread over six months, making it harder to directly impact the exchange rate. However, from the trading volume shown in the figure above, it can also be observed that whenever the ETF price plunges, it is usually accompanied by an increase in trading volume, and the maximum trading volume occurred during the significant appreciation of TWD in early April, indicating that there is indeed a causal relationship between the two.

The negotiations in the U.S. went smoothly, and the TWD surprisingly reached the 28 level.

The countdown for the grace period of the U.S. equivalent tariffs is ticking down. Executive Yuan Vice President Cheng Li-Chun and the chief negotiator of the Office of Trade Negotiations Yang Jennie led a government team to Washington D.C. on June 25 for the second round of in-person consultations with the U.S. side on the issue of equivalent tariffs, communicating with U.S. Trade Representative Jamieson Greer and Secretary of Commerce Howard Lutnick. Cheng Li-Chun stated that both parties believe constructive progress has been made in the negotiations thus far, and they hope to achieve mutually beneficial results.

This year's two significant appreciations of the New Taiwan Dollar coincided with the administrative team's negotiations in the United States, which inevitably leads to a lot of room for speculation.

Last Friday, the New Taiwan Dollar briefly broke through the 29 barrier. Although it closed at 29.180 after a late rally, traders generally believe it was just for show and do not want the TWD to appreciate too quickly.

( TWD unexpectedly sees a 28 header, TSMC's 10 billion USDT hedging arrow is on the string )

Currency exchange for overseas travel, retail investors are flocking to USD time deposits.

The recent significant appreciation of the New Taiwan Dollar has also attracted many people wanting to exchange currency before traveling abroad. Both the Japanese Yen and the Renminbi have shown a long-awaited sweet price, and many banks are even experiencing a shortage of Renminbi cash!

According to the banking and financial industry, there have been many retail investors recently coming out to rush to buy USD, placing it in high-interest fixed deposits, with good bargaining power able to secure fixed deposit rates of 4% to 4.5%.

What price level will the recent appreciation of the New Taiwan Dollar reach? Many people are looking at the 2021 low of 27.6, which still has about 4.8% room for appreciation from the current level of 29. However, if it can be stored in financial products with more than 5% returns, it seems to be in an invincible position.

Will USDTWD challenge 27.6 in the second half of the year? How will assets adjust their allocation?

If the New Taiwan Dollar truly performs as the market expects, challenging the price level of 27.6 in the second half of the year, how will you adjust your asset allocation?

According to the previous calculations by Chain News, for Taiwanese investors, even if Bitcoin shows impressive performance in the first half of 2025, rising from 94,419 USD at the beginning of the year to 106,545 USD on June 27, with an increase of 12.8%, the actual return calculated in New Taiwan Dollars is only 0.13%, which can almost be considered break-even. This is not due to the poor performance of Bitcoin itself, but rather the changes in the exchange rate playing a key role behind the scenes.

( Simply having New Taiwan Dollar is a complete victory! ETH lost to New Taiwan Dollar this year, and the USD earned from Bitcoin was all lost back.

From the author's own perspective, if the US dollar is merely a fixed and partial asset allocation for investment, investors can choose to continue holding in US dollars and keep investing to increase returns. After all, there are numerous investment products priced in US dollars and US stocks that have performed well in terms of investment returns over the long term. Exchange rates are cyclical over the years; currently, the US dollar is depreciating, but there will still be opportunities for it to appreciate again in a few years. Investors do not need to pay too much attention to exchange rate trends, but should instead focus on investing in US dollar assets.

If there are substantial USD revenues continuously credited in the future, investors can conservatively exchange at least half a year's income for TWD when the rates are high, similar to exporters' "pre-sale" to lock in the exchange rate. If TWD continues to appreciate in the second half of the year, at least the income from the past six months can be locked in at a better exchange rate. After all, USD income remains an important source of living expenses for some investors.

Investors may also consider converting US dollars into other foreign currency assets, moderately allocating to non-USD assets such as Japanese yen and euros, diversifying investments and exchange rate risks through foreign currency time deposits, foreign currency bonds, or multi-currency ETFs, and even investing in overseas stocks denominated in these foreign currencies.

This article discusses how the appreciation of the TWD has knocked down the US bond ETF. If it challenges 27.6 in the second half of the year, how should asset allocation be adjusted? First appeared on Chain News ABMedia.