The yield gap between 10-year US and Chinese government bonds widened to a record high of 317 basis points, or 3.17 percentage points, after US bond yields climbed to 4.85%, the highest level since 2023, while Chinese bond yields held steady at 1.68%, according to Bloomberg data going back to 2002. China is not facing a widening yield gap only against the United States, as Japanese and UK government bond yields are also trading near multi-decade highs. The record gap reflects diverging monetary policy paths, with the market expecting the Fed to raise interest rates to control inflation while the PBOC continues to pursue accommodative monetary policy to support economic growth. Wee Khoon Chong, senior Asia-Pacific market strategist at BNY in Hong Kong, said the widening bond yield gap reflects increasingly divergent macroeconomic and monetary policy cycles in the two countries. China's low bond yields have not put as much pressure on the yuan as might have been expected, with the yuan up more than 4% against the dollar this year, and in onshore trading on Thursday the yuan moved only slightly at around 6.7075 per dollar, near its strongest level since 2023. As of the end of July, foreign investors held only 4.6% of China's government bond market, according to Bloomberg calculations based on data from China Central Depository and Clearing Co.
