China 10Y Yield Falls After Inflation Data

China’s 10-year government bond yield rose above 1.81% on Tuesday, extending its recovery from a nearly seven-month low as strong domestic trade data lifted risk sentiment, while markets weighed US President Trump’s remarks over the Middle East war's duration. Figures showed that China’s exports grew faster than expected in the first two months of the year, highlighting resilient external demand before the Iran conflict disrupted global trade flows, while imports also posted solid gains, pushing the trade surplus to a record high. Meanwhile, Trump said the US military operation in Iran may be nearing its conclusion and progressing faster than initially anticipated. Oil prices also pulled back after he outlined measures aimed at containing energy costs, easing concerns about prolonged supply disruptions and renewed inflation pressures. Still, China is expected to weather oil price shocks better than other major economies due to its vast crude stockpiles and diversified energy sources.

China’s 10-year government bond yield climbed to around 1.81% on Monday, recovering from a nearly seven-month low touched last week amid inflationary shocks from surging oil prices due to the escalating Middle East conflict. The move was reinforced by stronger-than-expected domestic inflation data, with consumer prices rising 1.3% year-on-year in February, the fastest increase in three years, well above forecasts and January’s 0.2% gain. The rise was largely driven by stronger spending during the extended Lunar New Year holiday, while higher energy costs also contributed to price pressures. Oil climbed above $100 after the US-Israeli war with Iran entered its second week with no resolution in sight. Several major crude producers in the Middle East have cut output, while shipments through the Strait of Hormuz remain halted, raising inflation risks and threatening global growth. However, China, the world’s largest energy importer, is partly cushioned by its substantial oil reserves.

China’s 10-year government bond yield fell to around 1.78% on Friday, extending losses from the previous session as investors favored safer assets amid concerns over a lower GDP growth target. The Chinese government set a GDP growth goal of roughly 4.5%–5% for 2026, its most restrained target since 1991. The target signals a shift toward slower but more sustainable growth and less reliance on debt-driven property and infrastructure investment. It also shows that Beijing recognizes the four-decade growth model is facing mounting structural pressures. Similarly, the budget deficit will remain around 4% of GDP to support the economy amid domestic challenges and geopolitical risks. Meanwhile, bonds sold in China by overseas entities or issued abroad have raised a record CNY 218 billion this year, with the Indonesian government and Morgan Stanley among the participants. This brings the total borrowed via notes and loans in 2025 to $167 billion, a threefold increase over five years.