China 10Y Yield Remains at Over 1-Year Low

China’s 10-year government bond yield fell to around 1.68% on Wednesday, hovering near its lowest level since July 2025 as fresh policy stimulus and upbeat PMI data reinforced expectations of further support for the economy. Policymakers unveiled a new round of measures, including mortgage subsidies and expanded central bank funding support, while the State Council pledged to roll out "a package of practical and effective additional policies." Despite solid exports and AI-driven support, China’s economy continues to face headwinds, particularly from weak consumer spending and a prolonged slump in the property sector. Meanwhile, official data showed China’s Composite PMI rose to 50.7 in September 2026, its highest since December 2025, as manufacturing (50.1 vs 49.8) and non-manufacturing (50.2 vs 49.0) returned to growth. A private survey also showed the Composite PMI climbed to 52.1, with manufacturing (52.1 vs 51.5) and services (51.6 vs 51.4) continuing to expand.

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.