Chinese bonds forecast to deliver potential decade-high 9% return in 2024
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Chinese government bonds are set for their best performance in a decade, with analysts predicting further gains heading into 2025.
The country's 10-year bond yields have plummeted significantly in 2024, falling 84 basis points since January to 1.71%, marking a year of robust returns. According to Bloomberg, the total return for Chinese bonds in 2024 is expected to reach 9%, the highest since 2014. This trend has outpaced major global bond markets, as prolonged economic weakness and slowing consumer spending in China have increased expectations for further monetary easing, reports Bloomberg.
Forecasts for Continued Bond Growth Amid Economic Challenges
Local strategists, including those from Tianfeng Securities and Zheshang Securities, are predicting that Chinese 10-year bond yields could fall as low as 1.5% to 1.6% by the end of 2025. However, uncertainties surrounding global trade tensions and the strength of the U.S. dollar could impact these predictions.
Despite these potential risks, fixed-income investors remain optimistic about China's bond market, which continues to absorb significant debt issuance. In 2025, China plans to issue a record 3 trillion yuan in special treasury bonds, up from 1 trillion yuan this year. The country's finance ministry has also reaffirmed its commitment to expanding the fiscal deficit and increasing government spending.
Debt Issuance Concerns and Investor Sentiment
While there are concerns over the impact of rising debt issuance, investors such as Zhu Zhengxing from Fullgoal Fund Management Co. remain positive about the outlook for Chinese bonds in 2025. He noted that demand for bonds remains strong, despite the increase in supply, and emphasized that rate cuts could further support the market.
Bosera Fund’s Zhang Liling echoed this sentiment, suggesting that the increased debt supply would affect the yield curve’s shape rather than the overall direction of yields. He highlighted that Chinese bonds continue to offer a valuable safe-haven investment, particularly in a deflationary environment.
Additionally, Germany’s stock market has defied the economic gloom, with the Frankfurt Dax index rising 18.7% this year.
