(March 16): Yields on China’s 30-year bonds were headed for the highest close since September 2024 as rising oil prices fuelled by the war in Iran stoked inflation concern.
China’s 30-year bond yields rose three basis points to close to 2.4% while those on 10-year notes edged up two basis points to 1.84% on Monday. Futures on 30-year bonds fell to the lowest level since October 2024.
A steeper selloff in long-dated debt suggests that rising oil prices may finally counter China’s persistent deflationary pressures. Yields also climbed after industrial production and fixed-asset investment data pointed to an unexpected economic rebound at the start of the year.
“Elevated oil prices may add to expectations that China’s reflation efforts could ultimately bear fruit,” said Frances Cheung, head of foreign exchange and rates at Oversea-Chinese Banking Corp. “Domestically, this year’s bond supply remains high. We have a mild steepening bias on the Chinese government bond curve.”
Expectations for higher inflation and growth are curbing demand for sovereign debt as investors swap haven assets for riskier, higher-return securities. Despite a waning appetite for safer assets, China has left its debt issuance plan for 2026 steady compared with last year.
See also: Chinese economy surprises with rebound but war risks loom
The government is targeting selling 1.3 trillion yuan of ultra-long special sovereign bonds with the headline budget deficit unchanged at around 4% of gross domestic product for the year.
Market participants say this supply-demand imbalance is hitting long-dated paper hardest. Yields on 30-year bonds have risen about nine basis points so far in March as of Friday, setting the biggest monthly rise since September.
“We think the rise in Chinese government bond yields is driven by inflation concerns over higher energy costs, as well as bond supply — especially given banks’ limited appetite for ultra-long bonds,” said Serena Zhou, an economist at Mizuho Securities in Hong Kong.
See also: China home prices drop at slower pace as property slump abates
China’s consumer price growth accelerated to the quickest in over three years and factory deflation moderated in February. China, the world’s biggest crude oil importer, faces possible inflationary spillovers, though it’s created a cushion by stockpiling crude at onshore sites over the past year.
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