China 10Y Yield Hovers Near 2-Month Low

China’s 10-year government bond yield rose toward 1.80% on Friday, rebounding from a three-month low as investors took a cautious approach ahead of the Lunar New Year holiday. Mainland China markets will be closed Feb. 16–23, 2026, for the country’s biggest festival. Earlier this week, several developments shaped market sentiment. Financial institutions were advised to limit US Treasury holdings and reduce high-exposure positions amid concentration risk and market volatility. Meanwhile, the central bank reaffirmed its “moderately loose” monetary policy, signaling caution amid evolving domestic and global conditions. In the bond market, China raised CNY 14 billion in its first sovereign bond auction in Hong Kong this year, with yields hitting its lowest levels in over a decade. On the geopolitical front, the US has reportedly paused several tech-security measures targeting China ahead of a planned April summit between Presidents Donald Trump and Xi Jinping, easing some market pressure.

China’s 10-year government bond yield fell to around 1.78% on Thursday, hitting its lowest level since November 2025, supported by a moderately accommodative stance from the People’s Bank of China. The central bank reiterated its commitment to a “moderately loose” policy, signaling careful adjustments to the pace and timing of measures in response to evolving domestic and global conditions and market development. The guidance comes ahead of the latest inflation data, which showed annual consumer price growth slowing to 0.2% in January 2026 from 0.8% in December, while producer price deflation eased to 1.4% from 1.9%. Meanwhile, China sold CNY 14 billion in sovereign bonds in its first Hong Kong auction of the year, at the lowest yields in over a decade, reflecting strong demand and supporting Beijing’s push to expand the yuan’s global use. The 2-year bond was issued at 1.38%, while 3-year and 5-year bonds were sold at 1.4% and 1.57%, with 10-year and 30-year maturities also offered.

China’s 10-year government bond yield traded below 1.8% on Tuesday, nearing its lowest level in eight weeks, after Chinese regulators urged banks to curb excessive exposure to US Treasuries. Financial institutions were advised to rein in Treasury holdings and trim positions where exposure is high, citing concentration risk and market volatility. Still, the move was framed as market risk diversification rather than a geopolitical signal or a loss of confidence in US credit. The shift reinforces broader diversification away from dollar-denominated assets and could accelerate capital repatriation into Chinese markets, putting yields under pressure. Meanwhile, the People’s Bank of China has been ramping up liquidity injections ahead of the Lunar New Year to cover a large temporary funding shortfall amid cash withdrawals linked to holiday spending. By supplying banks with extra cash, demand for government bonds rises, weighing further on yields.