China 10Y Yield Hovers Near 2-Month Low

China's 10-year government bond yield steadied around 1.74% on Thursday, following two consecutive sessions of gains as signs of building inflationary pressures suggested that the People's Bank of China may have less room to ease monetary policy. Producer prices rose to 3.9% in May from 2.8% in April, marking the highest level since July 2022. This extended the rebound from China's prolonged producer-price deflation, driven largely by higher commodity and energy costs amid the Middle East conflict. Meanwhile, consumer inflation remained elevated at 1.2% in May 2026, although slightly below market expectations of 1.3%. Although China has mitigated part of the energy shock through its strategic oil reserves and expanding renewable energy capacity, sustained input-cost pressures could squeeze corporate profit margins if firms absorb the higher costs. Alternatively, if companies pass these costs on to consumers, inflation could rise further and weigh on household purchasing power.

China’s 10-year government bond yield rose toward 1.74% on Tuesday, rebounding from the previous session as investors remained cautious about the broader economic outlook despite stronger-than-expected trade data. Exports surged 19.4% year-on-year to a record USD 376.8 billion in May, supported by inventory accumulation to offset higher shipping and energy costs stemming from the Gulf conflict, and by AI-related product booms. While the conflict in the Middle East has not yet materially disrupted exports, signs of domestic economic slowdown continue to leave the country exposed to a global downturn. Imports rose 27.4% to USD 271.4 billion, beating forecasts of 25% as companies ramped up purchases of foreign chips and equipment. Consequently, China's trade surplus widened to USD 105.4 billion, its highest level since January. Meanwhile, China is due to launch a third tranche of 15 billion yuan-denominated bonds in Hong Kong on June 16.

China’s 10-year government bond yield fell to around 1.72% on Monday as investors looked ahead to key economic data later this week. Market participants are particularly focused on trade and inflation figures amid external and domestic headwinds, as recent data has shown signs of slowing economic momentum. A private survey showed China’s Composite PMI climbed to a three-month high of 54 in May, with the Services PMI also reaching a three-month peak of 54.4. However, the Manufacturing PMI fell to 51.8 from April’s five-year high of 52.2. On the trade front, the US Trade Representative proposed additional tariffs of up to 12.5% on imports from 60 trading partners, including China, over forced-labor concerns. The EU also introduced new measures that may limit Chinese firms’ access to parts of the European market. In response, Beijing vowed retaliatory measures, fueling fears of a broader trade dispute between major economies.