China's Bond Rout Accelerates as Stocks Soar, Deflation Eases

On September 10th, 2025, China's treasury bonds experienced a sharp decline as the country's economy showed signs of improvement. The sell-off was driven by two key factors: easing producer deflation and a buoyant stock market.

Data released on Wednesday revealed that China's producer deflation had eased in August, suggesting that Beijing's efforts to address excessive competition and price cuts in key industrial sectors were starting to bear fruit. This improvement in economic conditions prompted investors to shift their focus away from the bond market and towards equities.

Traders also attributed the bond sell-off to new fund rules that would encourage investors to buy equity funds instead of fixed-income products. These regulatory changes are aimed at guiding more investment towards the stock market, as China seeks to bolster equity financing to support technological innovation.

The bond market rout was widespread, with longer-dated debts suffering from heavier selling pressure. China's 30-year treasury futures dropped as much as 0.9% to four-month lows, marking the end of a two-year-long bond bull run in the country.

The sell-off in China's bond market is in contrast to the recent sell-offs witnessed in major global bond markets, which were driven by concerns about the fiscal health of economies such as Japan and the United States. Analysts say the logic behind the dumping of Chinese bonds is different, as money is gradually flowing into the country's surging equity market.