Payden & Rygel: China vs Japan, 30-year government bond yield

Payden & Rygel: China vs Japan, 30-year government bond yield

January 20, 2025

Fixed Income China Japan
Azië (02)

In theory, bond yields convey the collective wisdom of how markets see the present and future of a country. The 30-year Chinese government bond yield recently dipped below the 30-year Japanese government bond.

The occurrence is remarkable on two counts. First, Japan has languished near deflation for 20 years, so rising yields reflect some chance that the economy is turning the corner. Second, China has been teetering on the cusp of deflation (e.g. Consumer Price Index near 0% for 18 months). 

Investors have also become pessimistic about Chinese growth, with the property market downturn weighing on activity, suggesting China may follow the path tread by Japan after its 1980s boom and bust. A Chinese growth slump would be bad news as China's real per capita Gross Domestic Product is only half of Japan's and only 60% of Japan's level in the 1990s.

The good news? This week, China reported that Q4 GDP was up 5.4% compared to a year ago. Another takeaway from the chart [attached] is that with lower yields, it may be an opportunity for China to take advantage of lower borrowing costs and issue more longer-term government debt.

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