Janice R. Andrews
China’s Bond Market Expected to Extend Bullish Trend into 2025
China’s bond market is set to carry its strong performance into 2025, driven by aggressive monetary easing and growing investor caution over the economy’s strength. Analysts foresee further interest rate cuts and liquidity boosts, which could push yields on the 10-year government bond to record lows.
Historic Decline in Bond Yields
Currently, the yield on China’s 10-year government bonds stands at 1.697%, marking a historic low. This represents an 86.4 basis point drop in 2024, the largest decline since 2014. Investor confidence has been bolstered by a Politburo meeting in December where President Xi Jinping announced plans for “moderately loose” monetary policies in 2025—a term last used during the global financial crisis of 2010.
Predictions for Further Yield Declines
Brokerages are optimistic about further declines in bond yields. Zheshang Securities forecasts that the 10-year bond yield could fall below 1.5% in 2025. UBS Group anticipates a 30 to 40 basis point rate cut next year, while Soochow Securities is even more bullish, predicting a 60 basis point cut similar to the response during the last financial crisis.
According to Qi Sheng, an analyst at Orient Securities, the magnitude of easing has exceeded expectations. “The rapid yield decline has made fixed-income products stand out recently, thus drawing more capital into the debt market,” he said.
A Cautious Outlook
Despite the bond market rally, there are some warnings. Huaxi Securities has cautioned that bond prices may have already factored in expectations for monetary easing, limiting further upside. Analysts from Morgan Stanley also express skepticism about China’s ability to reflate the economy, noting that while further monetary easing is expected, fiscal expansion may not be substantial enough to significantly boost consumption.
Global Bond Market Comparisons
China’s bond market has performed strongly compared to other global markets. While the yield on the 10-year U.S. Treasury bond is holding steady at 4.593%, Japan has seen its 30-year sovereign bond yield surpass China’s for the first time in recent months, signaling a shift in its long-standing deflationary environment. Japan is now anticipating higher interest rates amid rising consumer prices.
Economic Weakness Fuels Bond Appeal
Weak economic data in China has added to the appeal of bonds. Retail sales growth in November slowed to 3%, missing expectations, and property prices continued to fall, eroding consumer confidence. Zhang Zhiwei, chief economist at Pinpoint Asset Management, noted, “Policy easing has not been strong enough to turn economic momentum around. The fiscal policy shift has been cautious, and property price declines have weighed on consumer confidence.”
Regulatory Responses to the Bond Rally
Despite regulatory interventions, China’s bond market has remained resilient. The central bank intervened earlier this year to prevent excessive rallying by purchasing sovereign bonds in the secondary market, but this has not significantly dampened investor enthusiasm.
Conclusion: Risks and Rewards in the Bond Market
As China’s bond market remains a key player amid global economic uncertainty, it offers both opportunities and risks for investors. While the potential for further gains exists, challenges such as limited fiscal stimulus and questions about economic recovery could put a brake on future growth.
This article provides a comprehensive overview of the factors driving China’s bond market and the potential implications for investors and the broader economy as we move into 2025.
