Chinese bond market grapples with ‘Japanification’

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Deflation fuels ‘inexorable’ slide in China’s long-term sovereign bond yields below Japan’s for the first time

China’s long-term bond yields have fallen below Japan’s for the first time, as investors bet that the world’s second-biggest economy will become bogged down by the deflation that has long afflicted its neighbour. A rally in 30-year Chinese government bonds has pushed their yield down from 4 per cent in late 2020 to 2.24 per cent on Thursday, as Beijing cuts interest rates to boost its flagging economy and Chinese investors pile into haven assets.

China’s monetary policy was likely to “remain accommodative for some time to come”, said Zhenbo Hou, an emerging-market sovereign strategist at RBC BlueBay Asset Management, even if measures to boost the housing and stock markets provided a temporary fillip to yields. “Nineties Japan remains the playbook,” he added.

 

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