Chinese 10-Year Bond Yield May Break 2% As Deflation Trade Ends
Benchmark Chinese 10-year government bond yields have climbed from around 1.8% toward potential 2%-3% levels as deflationary pressures ease and inflation expectations rise. The 5-year/30-year yield spread reached a four-year high, signaling reduced odds of further PBOC rate cuts and broader EM bond repricing.
1. Yield Movements
The Chinese 10-year government bond yield has climbed from record lows around 1.8% toward the 2% threshold this year, while the 30-year yield briefly reached its highest since September 2024, reflecting a shift in market sentiment.
2. Drivers of Shift
Recent data showing a rebound in economic growth, slower factory-gate price declines and an uptick in consumer inflation have undermined the deflation-driven narrative and reduced expectations for further PBOC easing.
3. Broader EM Repricing
The rise in Chinese yields has coincided with the highest average yield on emerging-market local-currency debt in almost two years, with yields jumping 50-100 basis points in energy importers such as Poland, South Africa and Thailand.