Chinese government bond yields surged to their highest levels in three months on Monday as investors adjusted their expectations for near-term interest rate cuts. The yield on China’s 10-year government bond climbed over 10 basis points to 1.865%, marking a 25 basis-point increase from January’s record lows.
The rise in yields comes amid a rally in Chinese offshore equities, suggesting a shift in investor liquidity toward riskier assets. The 30-year bond yield also surpassed the key 2% level, reaching 2.030%, while the one-year note yield climbed 10 basis points to 1.643%.
Fiscal policy shifts and rising bond supply
The yield increase follows signals from Beijing that the government is adopting a more aggressive fiscal stance. The National People’s Congress recently set an ambitious growth target of around 5% and announced a fiscal deficit of 4% of GDP—the highest since at least 2010. In addition, China plans to issue CN¥1.3 trillion ($178.9bn) in ultra-long-term special treasury bonds in 2025, CN¥300bn more than the previous year.
A higher supply of government bonds typically reduces the appeal of existing bonds, pushing down prices and lifting yields. Analysts expect further bond issuances if trade tensions with the US escalate, adding pressure on long-term rates.
“There is still room for long-end rates to correct further on a potentially faster issuance pace of long-dated bonds, the government’s aim to boost the property market and consumption, and ongoing equity rally,” said Ju Wang, head of Greater China FX and rates strategy at BNP Paribas.
Central bank signals delay in rate cuts
The People’s Bank of China (PBOC) has tempered market expectations for immediate monetary easing, citing a commitment to stabilizing the yuan. At a press conference last week, PBOC Governor Pan Gongsheng reiterated that the central bank would cut interest rates and adjust reserve requirements “at an appropriate time.”
Officials have hinted at rate cuts since late last year but have not yet acted. The PBOC’s focus on currency stability could be a strategic move ahead of potential trade negotiations with the US. The Chinese offshore yuan weakened by 0.24% on Monday to 7.2588 per US dollar.
“Rising bond yields in China provide a counterweight against depreciation pressure on the renminbi, especially in the context of falling US yields,” said Frederic Neumann, chief Asia economist at HSBC Bank. The US 10-year Treasury yield has dropped over 50 basis points since January, reaching 4.2839% on Monday.
Equity markets rally as bond yields climb
The bond sell-off coincided with a rally in Chinese offshore stocks, indicating a rotation of funds into riskier assets. The emergence of artificial intelligence startup DeepSeek has attracted global investors, boosting sentiment toward China’s tech sector.
“Investor sentiment has become more bullish following the re-rating in offshore equities triggered by DeepSeek, leading to a shift in favor of equities over government bonds,” said Carlos Casanova, senior Asia economist at Union Bancaire Privée.
The MSCI China Index has surged nearly 20% this year, while the Hang Seng Index in Hong Kong has risen over 18% year-to-date, outperforming global peers.
While some analysts believe the bond sell-off could slow as the PBOC prioritizes economic growth over exchange rate management, the expectation of continued bond issuance and pro-growth policies suggests that yields may remain elevated.
