China’s 10-year bond yield slumps to record low as investors scramble for safe haven

China’s 10-year government bond yield fell below 2 per cent for the first time on record, underscoring bets among investors that Beijing will need to ease its policies further to revive the economy. The yuan weakened as the yield advantage of similar-maturity US notes grew.

The yield on Chinese debt maturing in 10 years fell as low as 1.979 per cent on Tuesday, breaching the 2 per cent mark for a second day. For the year, the yield is down by 57 basis points, putting it on track for the biggest annual drop since 2018.

Brokerages predict the trend will continue, with Zhongtai Securities saying that a cut in the reserve requirement ratio (RRR) for banks is on the table before the end of the year and Huachuang Securities expecting interest-rate cuts between 20 and 40 basis points next year.

“China’s bond yields have hit a staggering new low, signalling a chilling risk forecast as the giant struggles against a deflationary spiral eerily reminiscent of Japan’s long economic malaise,” said Stephen Innes, a managing director at SPI Asset Management in Bangkok. “As yields nosedive, market whispers grow louder, anticipating further monetary loosening.”

Beijing’s recent stimulus packages have failed to assuage investor concerns about faltering economic growth. Recovery has been patchy at best, with retail sales bouncing back, though the property market’s downturn drags on despite authorities slashing borrowing costs and mortgage rates while lifting purchase restrictions in most major cities. A legislative meeting last month stopped short of rolling out any fiscal support for consumer spending, the part of the economy that is seen as vital for reviving growth.

“Despite a slew of rate cuts and easing measures, the central bank’s toolkit has yet to spark a robust revival, leaving traders betting on even more aggressive steps ahead,” Innes said.