Bond Yields in China Plummet to Record Lows
Interest rates on underwater exploration facilities
It's not just global stock markets like the Dax that are hitting new highs - the Chinese bond market is also breaking records. On a recent Friday, the Chinese bond market reached an all-time high, and there's more where that came from. The yield on China's 10-year government bond has hit a record low of 1.77%, a drop that's been happening since February.
Even in the long end of the Chinese government bond yield curve, yields are taking a nosedive. The yield on 30-year Chinese bonds dipped below 2% for the first time ever. This has created a spread of over 250 basis points between 10-year government bonds from China and their U.S. counterparts, the widest gap since 1999.
Behind the Scenes
So, what's causing this slide in Chinese bond yields? Here are a few factors:
- Economic Aid: China is planning to issue a substantial amount of special treasury bonds this year to prop up its economy.
- Monetary Policy Moves: There's been buzz about the People’s Bank of China (PBOC) potentially cutting interest rates or lowering the reserve requirement ratio for banks to infuse more liquidity and support growth.
- Market Stability: Despite an anticipated surge in bond supply, the market remains stable, thanks to the PBOC's management of liquidity through tools like reverse repurchase agreements.
The Great Dichotomy
As of early May 2025, the U.S. 10-year Treasury yield was around 4.469%. Given China's 10-year bond yield is near a record low, the spread between the two is about 1.7% to 1.9%. The situation is different for the 30-year bond, but it's generally expected that China's 30-year yield will be higher than the 10-year yield but not as high as the U.S. 30-year Treasury yield.
The Big Picture
US-China trade tensions have played a significant role in global economic conditions, influencing bond yields. However, the recent suspension in the trade war has led to increased optimism, causing Treasury yields to climb[1][2]. In contrast, China's bond yields have been affected more by domestic economic factors and monetary policy decisions.
In a Nutshell
China's bond yields have plummeted to near-record lows due to economic support measures and favorable monetary policy expectations. The spread between Chinese and US government bond yields is substantial, mirroring different economic conditions and monetary policy environments in the two countries.
- The drop in China's 10-year government bond yield is partially attributed to the country's plans to issue special treasury bonds, aiming to further stimulate the economy.
- The ongoing monetary policy moves, such as potential interest rate cuts or lowering reserve requirement ratios, are expected to inject more liquidity and sustain the growth in China's bond market.
