2026.01.1205:10:41UTC+00China 10Y Yield Dips Near Two-Week Low

China's 10-year government bond yield dropped below 1.87% on Monday, reaching its lowest point in nearly two weeks. This decline comes amid expectations for continued accommodative monetary policy, driven by persistently low inflation levels, even as the market grapples with a historically high volume of sovereign bond issuance. Although December's consumer inflation climbed to a three-year peak, annual inflation remains near its lowest in 16 years, and producer prices continue to fall, indicating ongoing weakness in domestic demand. This modest increase in consumer prices suggests that policymakers are likely to maintain supportive measures, such as interest rate reductions and adaptable reserve requirements, to ensure sufficient liquidity and promote economic growth. Additionally, China is set to auction 522 billion yuan in bonds during the first half of January, marking the largest half-monthly issuance on record. This includes an unprecedented sale of two-year notes. Investors are now keenly observing the forthcoming 10-year and 2-year bond auctions, which are set to be offered in record amounts, to assess demand in the face of substantial supply.