US-China bond yield gap widens to record

WASHINGTON

The gap between U.S. and Chinese 10-year government bond yields has widened to a record 317 basis points, reflecting sharply different economic and monetary policy conditions in the world’s two largest economies.

The benchmark U.S. 10-year Treasury yield climbed to around 4.85 percent, while its Chinese counterpart remained near 1.68 percent.

The gap is the widest in Bloomberg data going back to 2002.

U.S. yields have risen as higher oil prices, resilient economic activity and heavy government borrowing renewed concerns over inflation and the outlook for interest rates.

China, meanwhile, is trying to support an economy facing weak domestic and credit demand. Consumer prices rose 0.8 percent annually in August, while core inflation, excluding food and energy, stood at 1 percent.

The low-interest-rate environment has made borrowing in yuan increasingly attractive. Yuan-denominated bond issuance has reached a record 1 trillion yuan, or about $149 billion, this year.

The widening yield gap may also encourage investors to shift funds toward higher-yielding U.S. assets, increasing the risk of capital outflows from China and pressure on the yuan.

The divergence comes as Türkiye faces a more difficult external environment for monetary policy.

The Central Bank kept its one-week repo rate unchanged at 37 percent on Sept. 10.

It said the underlying trend of inflation was easing and domestic demand remained weak but warned that elevated energy prices posed an upward risk to the inflation outlook.

Brent crude has climbed above $100 a barrel as fighting in the Middle East raises concerns over supply and major shipping routes.

The European Central Bank also raised its deposit rate by 25 basis points to 2.5 percent on Sept. 10, citing inflationary pressure from the conflict and higher energy prices.

Higher U.S. yields increase the returns available in developed markets, while expensive oil adds to Türkiye’s imported inflation. The Central Bank said it would continue to set rates on a meeting-by-meeting basis and remained attentive to upside inflation risks.