US-China 10-Year Yield Gap Hits Record 317 Basis Points, Adding Pressure on Yuan

The gap between US and Chinese 10-year government bond yields has widened to a record, raising concern that China could face heavier capital outflows and greater downward pressure on the yuan.

Bloomberg reported on September 9 that the yield on the US 10-year Treasury climbed to 4.85%, its highest level since 2023. China’s 10-year government bond yield, by contrast, held at about 1.68%.

That widened the spread between the two countries’ 10-year yields to 317 basis points, with 1 basis point equal to 0.01 percentage point. It is the largest gap since Bloomberg began compiling the data in 2002.

A wider US-China yield gap erodes the relative appeal of Chinese assets and could spur capital outflows from both foreign investors and investors inside China. If money shifts into higher-yielding overseas bonds, the yuan could also come under downward pressure.

The yuan has recently remained near its strongest levels against the dollar in years, supported by solid exports. Still, the widening policy divergence between the People’s Bank of China, which is focused on supporting growth, and the Federal Reserve, which is tightening to curb inflation, could unsettle the current exchange-rate trend.

China’s yield disadvantage is not limited to the United States. Government bond yields in Japan and the UK have also climbed to levels not seen in decades. Bloomberg’s global sovereign bond gauge rose to 3.8% this week, the highest since 2007.