Record-Breaking Bond Rally in China’s Markets - Historic Low Yields and Wide Gap to U.S. Treasuries
Plummeting yields on Chinese bonds
The bulls are taking control of China's bond market in 2025, pushing long-term bond yields to astonishing lows, below 2%, a level untouched in the Middle Kingdom. This shift also resulted in a record high yield spread between China's bonds and U.S. Treasuries.
Author: Norbert Hellmann, Shanghai
China's bond market rally is showing no signs of slowing, backed by promises of stimulus from the Chinese government. In the most liquid segment of the 10-year government bonds, the yield has dipped beneath 1.8% for the first time and touched an all-time low of 1.72%, last trading at 1.77%. Even the 30-year bonds have experienced a massive drop, briefly going below the 2% mark midweek.
Despite these gains, challenges remain for the Chinese economy. Persistent trade tensions with the U.S., a sluggish global economy, and ongoing efforts to control the COVID-19 pandemic all pose potential threats to China's economic growth.
Strong domestic bank demand, especially an additional $33 billion in foreign currency bond holdings in 2024, contributed to the foundation for foreign capital inflows ($37 billion in early 2025) [1]. China’s dollar bonds showed volatility of 3.4% (2022-2024), considerably lower than U.S. Treasuries (6.3%), making them an attractive “safe-haven” asset amid global uncertainties [1]. The PBOC's 2024 measures, including a $70 billion stock market stabilization fund and interest rate cuts, boosted market confidence, while property easing initiatives, like a reduced 15% down payment minimum, further supported sentiment [5].
Meanwhile, the recovery in the property sector remains uneven, with mid-tier and lower cities lagging behind. Unsold inventory persists, necessitating continued policy execution, such as local governments purchasing homes for affordable housing initiatives [2][5]. Trade tensions between the U.S. and China could threaten export stability and foreign investment flows [4][5]. The recent equity rallies appear heavily reliant on retail investor optimism, which may prove fleeting amid economic uncertainties [3]. Protracted debt restructuring and credit quality improvements in sectors like real estate require prolonged policy discipline to prevent another climb in vulnerabilities [1][2].
While technical strengths and policy support fuel the bond rally, China’s economy walks a tightrope, balancing sustained growth with managing sector-specific risks.
- The Chinese government's promises of stimulus are backing the slowdown of China's bond market rally, with the most liquid segment of the 10-year government bonds dipping beneath 1.8% and touching an all-time low of 1.72%.
- The record-breaking bond rally in China's markets, characterized by historic low yields, has created a wide gap between China's bonds and U.S. Treasuries.
- Foreign capital inflows into China's bond market have been bolstered by strong domestic bank demand and additional foreign currency bond holdings, making China’s dollar bonds an attractive "safe-haven" asset amid global uncertainties.
- The bulls in China's bond market are investing in the segment, despite challenges such as ongoing trade tensions with the U.S., a sluggish global economy, and ongoing efforts to control the COVID-19 pandemic, all of which pose potential threats to China's economic growth.
