China’s long-end yields drop to lowest since mid-2025, driving aggressive curve flattening

China’s 10-year government bond yield slid to 1.67% on August 18, its lowest level since July 2025. That’s a 7-basis-point decline over the past month and 11 basis points lower than a year ago, reflecting a bond market that’s betting heavily on more stimulus from Beijing. While China’s long-end yields keep sinking, the US 10-year Treasury is sitting around 4.72%. That’s a gap of roughly 305 basis points between the world’s two largest economies. Weak data, strong signal The catalyst for the latest leg down in Chinese yields was a July data dump that disappointed across the board. Industrial production, retail sales, and fixed-asset investment all came in below consensus expectations. Growth estimates have now slipped beneath the government’s official target range of 4.5% to 5.0%. Premier Li Qiang made remarks that emphasized the need for enhanced policy support. The People’s Bank of China followed up with action on August 15, injecting 349 billion yuan, roughly $51.7 billion, into the financial system through an overnight reverse repo operation. The 30-year CGB yield was hovering around 2.15% on the same date, with the spread between 10-year and 2-year bonds compressed to approxima...