Chinese government bonds

20 August 2026, 21:00 UTC Chief Investment Office GWM Investment Research

Chinese government bonds Chinese government bonds Chun Lai Wu, Head CIO Asia Asset Allocation, UBS AG Hong Kong Branch Kasey Wang, CFA, Strategist, UBS AG Hong Kong Branch Christy Yuen, Strategist, UBS AG Hong Kong Branch

• Unlike the year-to-date trend in global rates, the 10-year CGB yield has continued its decline this month.

• Onshore inflationary pressure should remain contained, while weaker- than-expected July activity data suggest that domestic demand may take longer to recover.

• The PBoC is likely to maintain supportive liquidity operations and targeted credit measures, but cuts to the seven-day reverse repo policy rate may not be imminent.

• We maintain a Neutral view on CGBs while lowering our year-end 10- year CGB yield target to 1.65%.

Fig. 1: We expect the 10-year CGB yield to continue its gradual decline Our view to 1.65% by year-end.

The year-to-date decline in the Chinese government bond (CGB) 10-year yield has continued over the past month, as we expected, with the latest reading at 1.68% as of 14 August. Looking ahead, we expect the CGB 10-year yield to continue declining to 1.65% by December 2026.

While long-end US Treasury yields have climbed since the start of the Middle East conflict in March, Chinese rates have maintained their downward trend throughout this year. Unlike many other major economies, China has experienced limited domestic inflation. Developments in the Middle Source: Bloomberg and UBS, as of 17 August 2026 East will continue to drive oil-price volatility, but we believe the PBoC will require substantially more evidence of upside inflation surprises before communicating a more hawkish monetary-policy stance, as other major central banks have done. Global interest-rate movements, particularly at the long end of the curve, could trigger some volatility in the CGB 10-year yield, but we believe the impact will be very limited, based on historical data.

The latest July macroeconomic activity data in China came in weaker than expected by the market, suggesting that domestic demand may take longer to recover. We expect the PBoC to remain supportive through liquidity operations and targeted credit measures. The introduction of the overnight reverse repo facility appears intended to smooth interbank liquidity rather than signal a shift towards easier monetary policy. Cuts to the seven-day reverse repo policy rate may not be imminent; therefore, the scope for a meaningful decline in the CGB 10-year yield appears limited in the near term.

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Given the low yield carry offered by CGBs relative to global rates, as well as the limited prospects for imminent, significant rate cuts, we are maintaining our Neutral view on CGBs as a whole. We expect the CGB 10-year yield to continue its gradual decline to 1.65% by December 2026.

For global and Asian investors, CGBs offer valuable diversification benefits within a strategic multi-asset portfolio, given their low correlation with global rates and China’s more prudent fiscal approach compared with those of other major economies. CGB yields are also considerably less volatile than global rates, particularly at the long end of the curve.

Key upside and downside risks to our view on CGB performance relate to geopolitical developments and domestic inflation surprises.