China Outperforms US as High Domestic Savings Drive Down Bond Yields

Amidst the pressures affecting bond markets in advanced economies, China’s bond market is moving in the opposite direction. While US Treasury yields and those of many developed nations have surged, Chinese bond yields continue to decline.

According to Refinitiv data, at the close of trading on Wednesday (2/9/2026), China’s 10-year government bond yield stood at 1.692%. At the same time, the 10-year US Treasury yield was at 4.794%, having touched 4.8%, its highest level since November 2023. Currently, the 10-year Chinese bond yield is approximately 310 basis points lower than its US counterpart. This gap is the widest since January last year and could potentially set new records if current trends persist.

This marks a significant shift, as from 2010 to 2022, Chinese bond yields were almost always higher than US Treasuries. Government bonds in many nations are currently under pressure due to concerns regarding inflation, policy credibility, and ballooning debt, prompting investors to demand higher returns to hold sovereign debt.

Deflationary Pressures Suppressing Yields

While much of the world is struggling to lower inflation, China is instead attempting to emerge from deflationary pressures that have persisted for several years. This situation is closely linked to the property crisis that has hit the country since 2021. The collapse of the property sector has weighed heavily on consumption, economic activity, and price movements.

Low inflation means investors are not demanding higher yields to protect the value of their investments. This also provides space for the People’s Bank of China (PBoC) to maintain a more accommodative monetary policy. The combination of low inflation and loose monetary policy has kept Chinese government bonds in high demand, thereby preventing yields from rising.

Nevertheless, signs are emerging that China’s deflationary pressure is easing. Producer inflation, which was negative for nearly four years, turned positive at the beginning of this year and exceeded 4% in June 2026. China’s Gross Domestic Product (GDP) deflator also returned to positive territory in the second quarter of 2026 after being in the negative zone for four years.

Under normal circumstances, improving price pressures should drive Chinese bond yields higher. However, movement remains low, sustained by massive domestic demand.

High Domestic Savings

China possesses much higher domestic savings compared to advanced economies. According to World Bank data, China’s gross domestic savings ratio reached 43.3% of GDP in 2024. This figure is nearly double the G7 average of 22.5% and approximately 2.3 times larger than that of the United States, which stands at 18.5%.

Gross domestic savings represent the portion of economic income not used for consumption. This figure includes not only household savings but also corporate and government savings. While a high ratio indicates a large pool of funds available for investment in China, it also reflects weak domestic consumption, as a large portion of income remains unspent.

These funds do not easily flow abroad. Capital controls implemented by Beijing limit the ability of Chinese individuals and companies to move and invest their funds in other countries. Simultaneously, domestic investment options are increasingly limited. The property sector, which for years was a primary investment destination, has yet to recover from the crisis that began in 2021.

The stock market is also viewed as too risky by many investors. The benchmark CSI 300 index remains approximately 20% below its 2021 peak. Consequently, the public is choosing to keep funds in banks or in safer investment products. These funds are then channelled by banks, insurance companies, and investment managers into Chinese government bonds. This massive domestic capital inflow keeps demand for government bonds strong; as demand increases, bond prices rise and yields fall.

This demand is expected to be sufficient to absorb additional bond issuances should Beijing increase spending to stimulate economic growth. Analysts at HSBC even predict that China’s 10-year government bond yield could drop to 1.5% by the end of this year.

However, low yields do not entirely reflect the strength of the Chinese economy. They also indicate the vast amount of domestic capital being held within the country, while the public remains reluctant to increase consumption and faces limited investment choices.

Behind Low Yields, Is China’s Debt Mounting?

China’s success in maintaining low bond yields does not necessarily indicate a healthier fiscal position than that of advanced nations. While China’s government debt-to-GDP ratio can be categorised as relatively low—projected at around 75% this year, which is much lower than most G7 nations except Germany—this does not capture the full extent of China’s debt burden.

The distinction between central government, local government, and local government financing vehicle (LGFV) liabilities is not clearly visible. This makes China’s fiscal position appear stronger on the surface than it actually is. The International Monetary Fund (IMF) uses a broader calculation known as ‘augmented debt,’ which includes local government debt accumulated through LGFVs. Based on this calculation, China’s debt ratio…