FX.co ★ China 10Y Yield Nears 8-Week Low

China’s 10-year government bond yield fell below 1.8% on Tuesday, approaching its lowest level in eight weeks, after regulators urged banks to limit excessive exposure to US Treasuries. Financial institutions were instructed to scale back Treasury holdings and trim positions where exposure is particularly high, with authorities citing concerns over concentration risk and market volatility. Officials emphasized that the move is intended as a market risk diversification measure rather than a geopolitical signal or an indication of diminished confidence in US sovereign credit.

The policy shift supports a broader trend of diversifying away from dollar-denominated assets and may accelerate the repatriation of capital into Chinese markets, adding downward pressure on domestic yields. At the same time, the People’s Bank of China has been injecting liquidity ahead of the Lunar New Year to address a sizable temporary funding gap caused by increased cash withdrawals for holiday-related spending. This additional liquidity boosts banks’ demand for government bonds, exerting further downward pressure on yields.