Chinese government bonds emerge as a safe-haven amid US-Iran conflict

This stance of Chinese government bonds is believed to stem from the resilience of the world’s second-largest economy in the face of surging energy prices and rising inflation pressures.

Yields diverge as global rates rise

Since the end of February, the 10-year Chinese government bond yield has eased to 1.81%. By contrast, the US 10-year Treasury yield rose by 0.38 percentage point to 4.34%, while UK government bond yields jumped by 0.7 percentage point. In general, falling yields reflect higher bond prices, and vice versa.

Energy-price shock insulation and domestic demand

Investors are betting that the Federal Reserve, the Bank of England and the European Central Bank will be forced to keep policy rates higher than anticipated to combat inflationary pressures linked to higher crude oil and natural gas prices. China, however, is seen as relatively “immune” to energy-price shocks due to its resilient energy mix and lower inflation prior to the conflict.

Domestic demand from Chinese investors—constrained in seeking overseas investments due to Beijing’s capital controls—has also helped Chinese government bonds avoid the broader global sell-off.

Market resilience despite the prior rally

Chinese government bonds have held up despite a prolonged rally that pushed yields from above 4.7% in early 2014 to around 1.6% at the start of last year. That rally prompted the People’s Bank of China to warn that a reversal could threaten financial stability.

Why China is viewed as less exposed than energy-importing peers

Europe and much of Asia, which depend on imported energy, are seen as vulnerable to rising oil prices. China’s energy mix is viewed as more diverse, with coal and renewables playing significant roles. The country’s large strategic oil reserves and access to discounted oil and Russian gas are also cited as factors that help shield it from energy shocks affecting neighboring economies.

Jason Pang, a senior portfolio manager at JPMorgan Asset Management, said Chinese government bonds offer an investment option that is not affected by price swings in other assets.

Central bank context and inflation dynamics

Mitul Kotecha, head of Asia FX and EM macro strategy at Barclays, said: “China is less affected by energy-price pressures at this time and has a quite different starting point economically. The PBOC is in a different position than other central banks. We still think China could ease policy. This is a very different monetary context from what we are seeing in other economies.”

China’s consumer price inflation rose to 1.3% in February 2026, the highest in more than three years, but still below the 2% target. With a prolonged real estate slump, memories of stock-market crashes, and limited investment options, many Chinese investors have turned to government bonds.

Capital controls and a large domestic demand base

Vincent Chung, a bond portfolio manager at T. Rowe Price, said: “The Chinese government-bond market has been able to absorb the impact better due to a large base of demand—the capital that is stuck.”

Wei Li, head of multi-asset investments in China at BNP Paribas, added that Chinese government bonds are relatively insulated because most investors are domestic, making the market different from the US Treasury market.

Global investor interest and comparative performance

Global investors have also noticed the appeal of Chinese government bonds, even though yields have risen modestly since the start of last year. A Gavekal Research report said: “Since 2012, investing in Chinese government bonds has been one of the few ways for global government-bond investors to outrun inflation in the US. All major bond markets have delivered meaningful real losses, and some markets, such as Japan, Germany, and the UK, have even delivered nominal negative returns for 14 years.”

Perceived policy predictability versus US uncertainty

Some investors also view China’s monetary-policy environment more favorably than the policy environment under US President Donald Trump’s pressures on Fed Chair Jerome Powell. Wei Li said: “The PBOC’s monetary policy is fairly predictable. When the central government wants the PBOC to cut rates, they cut rates.”

He added: “Conversely, the Fed’s policy is full of uncertainties... When the next Fed chair takes over, will policy keep its current path? Investors in government bonds don’t like this kind of uncertainty. They want stability.”