China 10Y Hits Near 1-Month Low

China’s 10-year government bond yield rose to around 1.70% on Thursday, hitting its highest level in nearly a month as investors returned from the week-long Golden Week holiday. Investors remained underwhelmed by the latest round of stimulus measures, which include mortgage subsidies and expanded central bank funding support, while the State Council pledged to roll out “a package of practical and effective additional policies.” While the latest measures represent the biggest stimulus effort since September 2024 and make it more likely that China will meet its annual growth target of 4.5%-5%, investors are waiting for further support to address the country’s underlying demand weakness. Meanwhile, offshore investors’ monthly repo transactions climbed to 1.2 trillion yuan in August, more than double the level a year earlier. However, broader international participation remains constrained by legal complexities and subdued bond yields.

China’s 10-year government bond yield traded around 1.68%, its lowest since July 2025, as a weaker economy and softer inflation expectations boosted demand for fixed-income assets. August data showed demand continued to deteriorate. Retail sales growth slowed to just 0.4% year-on-year, missing forecasts, while fixed-asset investment contracted 7.2% in the first eight months, a deeper decline than through July, keeping expectations of further stimulus alive. Although industrial output accelerated to 5.2% on tech-manufacturing strength, resilient production alongside weak consumption deepened deflationary concerns. Meanwhile, the PBoC held benchmark lending rates at record lows for a 16th month, even as it plans measures to restrain banks' long-dated bond purchases. The main counterweight is a looming Q4 supply surge: local governments used only 81% of their annual special bond quota in the first 9 months, while unused borrowing quotas from previous years could also be activated.

China’s 10-year government bond yield fell to around 1.67% on Thursday, remaining near its lowest level since July 2025, even as uncertainty over the extension of the US-China trade truce persisted. US Treasury Secretary Scott Bessent said the US and China had agreed to extend the truce by two months through January 10. However, China has yet to publicly confirm the expiration date, while the extension falls short of the three-to-six-month continuation previously suggested by some US officials. The decline in Chinese yields came despite a broad global bond selloff, as stronger-than-expected US economic data and weak demand at a Treasury auction drove yields across much of the US curve to their highest levels in nearly two decades. The yield premium of 10-year US Treasuries over Chinese government bonds remained close to a record high. Mainland China’s financial markets will suspend trading September 25–27 for the Mid-Autumn Festival holiday.