(Financial Times, William Sandlund, April 2, 2026)
Yields on Chinese 10-year government bonds have fallen slightly to 1.81% since the start of the conflict with Iran, while those on U.S. Treasuries have risen by 0.38 percentage points to 4.34%, and those on British gilts have increased by 0.7 points, demonstrating how the Chinese debt market has avoided the global sell-off triggered by the energy shock and inflation.
Investors are betting that China will remain relatively isolated thanks to its diversified energy mix, with a strong weight of coal and renewables, huge strategic oil reserves, and purchases of discounted Russian crude oil and gas, while inflation remains low at 1.3% and the People’s Bank of China keeps the possibility of further monetary easing open.
Domestic demand, fueled by capital trapped by capital movement controls, has made Chinese government bonds a low-correlated investment with other debt markets, also attracting global investors seeking stability amid strong political pressure on the Federal Reserve and uncertainty over future U.S. interest rates.
The Decline in Chinese Yields Against Global Rise
“Yields on Chinese 10-year government bonds have fallen slightly to 1.81% since the end of February. In contrast, yields on U.S. 10-year Treasuries have increased by 0.38 percentage points to 4.34%, while yields on British gilts have risen by 0.7 percentage points. Bond yields rise when prices fall.”
The Diversity of China’s Energy Mix as Protection
“While Europe’s and much of Asia’s dependence on energy imports is seen by investors as a vulnerability to price increases, China’s relatively diversified energy mix, in which coal and renewables play an important role, has offered some protection. The country’s huge strategic oil reserves and access to discounted Russian oil and gas have further shielded it from the energy shock looming over neighbors such as South Korea, Japan, and Southeast Asia.”
Domestic Demand Trapped by Capital Controls
“The Chinese government bond market ‘has been better able to absorb the impact because the demand base consists of trapped capital,’ said Vincent Chung, fixed income portfolio manager at T. Rowe Price. Chinese capital controls tightly limit the amount of money citizens can move out of the country, making its government bonds relatively uncorrelated with the performance of other debt markets.”
The Stability of PBoC’s Monetary Policy
“Some investors also view Chinese monetary policy more favorably, compared to sustained pressure from President Donald Trump on Federal Reserve Chair Jay Powell to cut interest rates. ‘Their monetary policy [of the PBoC] is quite predictable,’ said Wei Li of BNP Paribas. ‘When the central government wants the PBoC to cut yields, it cuts them.’ In contrast, he noted, ‘Fed policy has many uncertainties… When the new Fed chair takes office, will policies continue?’”
Positive Real Yield Compared to Other Markets
“‘Since 2012, investing in CGBs has been one of the few ways for global government bond investors to beat U.S. inflation,’ wrote Charles and Louis-Vincent Gave, founders of Gavekal, in a recent note. ‘All other major bond markets have recorded significant real losses, and some, like Japan, Germany, and the U.K., have even recorded negative nominal yields over this 14-year period.’”
(Excerpt from the newsletter by Giuseppe Liturri)
