The benchmark 10-year US Treasury yield increased to 4.85% on Wednesday, the highest ever since 2023. Meanwhile, its similar maturity Chinese counterpart was steady at 1.68%.
This drove the yield gap between the two to a record high of 317 basis points, as per data compiled by Bloomberg from 2002. China’s yield disadvantage extends beyond US debt, as Japanese and UK yields sit near multi-decade highs.
The record spread is a reflection of a sharp monetary policy divide. The US Federal Reserve is likely to raise its interest rates to combat inflation, while the People’s Bank of China is keeping its policy loose to support growth. Onshore banks have also piled into government bonds amid a dearth of attractive investment options and sluggish loan demand, helping anchor yields.
Crucially, the depressed onshore yields have done little to dampen the yuan’s resilience, with the currency having climbed over 4% against the dollar this year to outperform all but one of its Asian peers. The gains have been underpinned by China’s resilience to energy supply shocks, its strong exports and the central bank’s tolerance for a stronger currency.
The yuan was little changed at 6.7075 per dollar in onshore trading on Thursday, near its strongest level since 2023. The yield on China’s 10-year government bond is hovering around the lowest level in more than a year.
With inputs from Bloomberg
