China-US Bond Markets Diverge Amid Hawkish Tone and Volatility

The bond markets in China and the US are diverging further, with economic data from Asia lagging behind analyst estimates. In contrast, the Federal Reserve under Kevin Warsh is sounding a hawkish tone, prioritizing inflation control over employment.

The yield on China's 10-year government bond has fallen to 1.692% after economic figures trailed estimates in July. Analysts at Great Wall Securities predicted this momentum would drive yields even lower, potentially reaching 1.65%. Meanwhile, the US 30-year yield is near a two-decade high of 5.304%, with investors demanding term premiums despite Treasury Secretary Scott Bessent's buy-back program.

Warsh's Jackson Hole speech focused on restoring price stability, implying policy priority over employment. This hawkish tone added to the headwinds for Treasuries, which rose in response. Analyst Li Xianglong warned of increased volatility in US Treasuries, but noted it would have limited impact on China's bond market.