China’s bond market is sending alarm signals over the state of the economy, as its central bank uses financial heft and brash warnings to battle deflationary pressures.
The country’s benchmark 10-year sovereign yield has fallen from more than 2.5 per cent at the start of last January to about 1.6 per cent at the beginning of 2025, sparking warnings of “Japanification”, in which the economy suffers a protracted period of deflation and sluggishness.
The People’s Bank of China has repeatedly expressed concern over regional banks buying up its government bonds in the past year, and sending the country’s borrowing costs plunging — in a mirror image of what has happened in western debt markets over the past months.
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