China's bond market, the second largest in the world, is sending troubling signals as the economy falters. Investors are retreating into government bonds, a classic safe haven, as confidence in riskier assets wanes. Despite the Communist Party's attempts to project economic stability, falling yields tell a different story. The People's Bank of China (PBOC) is stepping in aggressively, attempting to control the surge in bond prices, but the intervention highlights deeper issues.
State banks have started dumping long-term treasuries to stabilize the market, echoing previous efforts to manage the yuan. The PBOC has even halted liquidity injections for the first time in years, signaling a more forceful stance. However, experts warn that these measures may only slow, not stop, the bond bull run. With economic recovery uncertain and inflation still low, the pressure on China's financial system is mounting.