The recent rebound in China’s government bond yields is not a sign of reflation, economists say, as persisting deflationary pressure is expected to keep borrowing costs low.
An intensified sell-off in China’s government bonds has sent yields rising in recent weeks, as the People’s Bank of China drained liquidity from the money market to stabilize its currency and the sudden rise of DeepSeek prompted funds to rotate into stocks.
The benchmark 10-year yield has gained over 30 basis points from its historic lows in January to hit the psychological level of 2% this week, levels not seen since December.
“The market’s optimism is ahead of the reality,” said Edmund Goh, head of China fixed income at Abrdn, cautioning that there is “no clear signal that the economy is out of the woods yet.”
Consumer sentiment is near record lows and credit demand from households and corporates is still anemic.
New household loans were just 54.7 billion yuan ($7.5 billion) in January-February period, according to data released by PBOC. That marked the lowest level over the same period in the last two decades, according to Larry Hu, chief China economist at Macquarie, citing fading housing market recovery.
