Chinese government bonds are attracting growing interest from global investors as rising geopolitical tensions, particularly the Iran conflict, fuel volatility in global fixed-income markets. According to Reuters, Chinese government bond yields have fallen while benchmark yields in the United States, Britain, Europe and Japan have risen sharply since March. This performance has prompted institutional investors, including sovereign wealth funds, central banks and insurance companies, to reassess portfolio allocations as they seek diversification and stability. The appeal is defined not by yield but by near-zero correlation with Western markets, strong liquidity and risk-adjusted stability despite lower yields.
The Guotai 10-Year China Treasury ETF has delivered positive returns so far this year, outperforming comparable U.S. and European government bond ETFs, which have posted losses. As reported by Reuters, Chinese government bond yields have fallen by about 8 basis points while core U.S., U.K., European, and Japanese bond indices have risen. Chinese 10-year government bond yields have fallen to around 1.75%, placing them among the lowest in the world. Unlike Japan, where ultra-low yields historically encouraged capital outflows, China's capital controls have largely kept domestic savings within the country, supporting demand for local bonds.
Foreign investor participation in China's bond market improved recently, with overseas investors being net buyers of onshore yuan-denominated bonds in May, marking the first monthly inflow since April 2025. According to Reuters, holdings of foreign institutions in China's interbank bond market rose to 3.21 trillion yuan at the end of May from 3.12 trillion yuan a month earlier, as reported by the People's Bank of China's Shanghai headquarters. The Guotai 10-Year China Treasury ETF delivered 1.26% this year, while the U.S.-oriented iShares 7-10 Year Treasury Bond ETF fell 2.57% and the European Invesco fell 1.23%.
Japan's Nikkei 225 jumped as much as 1% to set a fresh record high above 70,000 after the Bank of Japan raised interest rates as widely expected, without signaling urgency for further tightening. The central bank's decision came during the trading break for stocks and bonds and had little initial effect on the yen, which remained around 0.1% firmer at 160.215 per dollar. However, this was still on the weaker side of the 160-per-dollar level considered a line in the sand for intervention by Japanese officials. As Saxo chief investment strategist Charu Chanana noted, "The BOJ delivered what markets expected, but the reaction shows this was not hawkish enough to force a major yen repricing." Benchmark 10-year JGB futures lost 0.28 yen to 127.98 yen, with the yield on the 10-year cash bond rising 0.5 basis point to 2.625%.
