In early January 2025, China’s benchmark 10 year government bond yield dropped below 1.6%, its lowest rate ever recorded. Recent trends in Chinese bond markets have been in stark contrast with those evident in most advanced economies (AEs) – where, on average, yields have moved close to their highest levels in the post Global Financial Crisis period. In part the divergence in yields highlights the very different economic conditions in these regions following the COVID-19 pandemic – with China’s weak domestic demand constraining bank lending and inflation while (at least anecdotally) unemployment has been relatively high. Expectations of further monetary easing in 2025 may explain the current inversion in the short end of the yield curve, however, the flat curve for longer dated maturities may highlight weak confidence around China’s longer term prospects.

For further details, please see the China Economic Update (February 2025)