Graphs, Data, Perspectives | Why bond yields are rising in all major countries — except China

Government bonds represent the least risky investment option in any economy. Investors anticipate receiving their money back, which is why bond yields represent the returns an investor can expect to earn by lending money to the government. Traders fluctuate the prices of these bonds, leading to corresponding changes in yields. Rising bond yields indicate higher borrowing costs for governments and, consequently, higher interest rates for all borrowers, as lending to the government is considered the safest option.

This situation is expected to hinder economic growth. The chart illustrates the significant shift in bond yields since the start of the US-Iran war at the end of February. For example, the yield on US 10-year bonds, through which the US government borrows money for 10 years, has risen by 125 basis points, highlighting how seemingly minor changes can have substantial consequences.

However, China stands out as an exception. In stark contrast to other nations, China's government bond yields have actually decreased, making it the world's second-largest economy that rivals the size of the euro-zone economy. While falling bond yields may seem advantageous for China, as it reduces borrowing costs, this is a cause for concern due to the weak domestic economy.

To comprehend this, it is crucial to understand the reasons behind falling bond yields in China. Globally, yields are increasing due to rising inflation rates and investors demanding better returns for lending money. However, China has experienced flat domestic inflation rates, including deflation, where prices fall from one year to another.

In 2025, China's inflation rate was 0%, with 0.2% consumer inflation in 2024 and 2023. Even with rising oil prices and supply disruptions, the inflation rate is only expected to rise to 1% in 2026. China's low inflation rate has two main reasons: first, its growth rate has significantly decreased over the past decade, with a new normal of 4% to 5% growth.

Second, unlike most economies driven by domestic consumption, China's growth is fueled by exports. With limited domestic consumption, savings flow into buying safe government bonds, causing bond prices to rise and yields to plummet.