Chinese government bonds

17 September 2026, 21:00 UTC Chief Investment Office GWM Investment Research

China 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

• Against a backdrop of persistently elevated global rate volatility, CGBs have remained largely anchored within the 1.68-1.70% range over the past month.

• Weak domestic demand and soft credit growth continue to support CGB demand.

• The PBoC continues to provide ample liquidity support, but near-term policy-rate cuts appear unlikely.

• Bond issuance should accelerate toward the year-end, which will likely limit significant near-term upside for CGBs.

• We maintain a Neutral view on CGBs and keep our 10-year CGB yield target at 1.65%.

Fig. 1: Central government bond Our view issuance reached CNY 4.4tr, or 63% of annual issuance quota

Against a backdrop of persistently elevated global rate volatility, China government bonds (CGBs) have remained largely anchored within the 1.68-1.70% range over the past month, with the 10-year CGB yield at 1.69% as of 14 September. Looking ahead, we expect the 10-year CGB yield to continue declining gradually to 1.65% by December 2026.

A resilient labor market, firmer-than-expected inflation data, and escalating geopolitical tensions in the Middle East have reinforced expectations of a more hawkish Fed path, driving a continued sell-off in global rates. In contrast, CGBs have remained largely insulated from the global repricing Source: Wind, UBS, as of 11 September 2026 cycle, with yields trending lower. While a further escalation of the US-Iran conflict could exert upward pressure on energy prices, we believe the People’s Bank of China (PBoC) will require stronger evidence of sustained inflationary pressures before shifting to a materially more hawkish policy stance, given subdued domestic inflation. As a result, China's policy and inflation dynamics should continue to diverge from those of major developed markets. Global yield movements, particularly at the long end of the curve, may generate some volatility in 10-year CGB yields. However, historical experience suggests the transmission of global rate sell-offs to CGBs remains limited.

China's domestic growth remains uneven, with exports and AI-related sectors continuing to provide support, while household demand, property activity, and private-sector credit demand remain soft. Against this backdrop, weak financing demand has kept downward pressure on rates and encouraged

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banks, insurers, and other long-term investors to maintain allocations to government bonds. However, the scope for a substantial further decline in yields appears limited. The PBoC has maintained a broadly accommodative liquidity environment through its overnight reverse repo facility, helping to keep money-market rates stable, but policymakers have shown little urgency to deliver additional policy-rate cuts. With cuts to the seven-day reverse repo rate appearing unlikely in the near term, a renewed rally in long-end government bonds may be difficult to sustain.

At the same time, fiscal implementation is accelerating. Following the July Politburo meeting's call to speed up fiscal spending and the use of bond proceeds, government bond issuance has begun to pick up and is expected to strengthen further in the coming months. As of 11 September, cumulative central government bond issuance had reached only 63% of the full-year quota approved at the March Two Sessions, compared with 81% at the same stage last year, suggesting a heavier issuance pipeline ahead. The increase in government bond supply is likely to exert upward pressure on yields.

Given the relatively low carry offered by CGBs compared with global fixed income, limited scope for meaningful policy-rate…