Why Bond Yields Are Rising in All Major Countries Except China

Global government bond yields have been rising as inflation concerns push investors to demand higher returns on their investments. China is an exception, with its government bond yields falling amid low inflation, weak domestic consumption and limited investment opportunities. This divergence highlights differences in economic conditions across major economies.

What Are Government Bond Yields?

Government bonds are debt instruments through which governments borrow money from investors. A bond yield is the return an investor earns on a bond relative to its price.

Bond prices and yields generally move in opposite directions: 

• When bond prices fall, yields rise. For example, suppose a government bond pays ₹100 annually. If its market price falls from ₹1,000 to ₹800, the annual payment remains ₹100, but the return relative to the purchase price rises from 10% to 12.5%.
• When bond prices rise, yields fall. If the same bond’s market price increases from ₹1,000 to ₹1,250, the annual payment remains ₹100, but the return relative to the purchase price falls from 10% to 8%.

Government bond yields also influence borrowing costs across the economy. Rising yields can make it more expensive for governments and other borrowers to raise funds.

Why Are Bond Yields Rising Globally?

Government bond yields are rising in major economies as inflation increases and investors demand higher returns to compensate for the erosion of their money’s purchasing power.

The main reasons include:

• Rising inflation: Higher prices reduce the purchasing power of future bond payments, prompting investors to demand higher yields.
• Higher interest rates: Central banks may raise policy interest rates to contain inflation, putting upward pressure on bond yields.
• Higher borrowing costs: As yields rise, governments face greater costs when issuing new debt or refinancing existing debt.

The scale of this shift is significant. The yield on US 10-year government bonds increased by 125 basis points after the US-Iran war began at the end of February 2026. One basis point equals 0.01 percentage point.

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Why Are Bond Yields Falling in China?

Unlike other major economies, China has experienced very low inflation, alongside periods of deflation. This reduces pressure on its central bank to raise interest rates and encourages investors to seek returns from government bonds.

Three factors help explain China’s falling bond yields.

• Low inflation: China’s consumer inflation rate was 0% in 2025, compared with 0.2% in both 2023 and 2024. Inflation was expected to rise only to around 1% in 2026, according to the report.
• Moderating economic growth: China’s growth has slowed from the double-digit rates recorded in earlier decades. Weaker demand limits upward pressure on prices.
• Weak domestic consumption and limited investment options: China relies heavily on exports, while household consumption remains relatively weak. The property market downturn and restrictions on investing abroad have also limited attractive investment avenues.

As a result, a large share of domestic savings flows into government bonds. Increased demand raises bond prices and pushes yields down.

What Does the Divergence in Bond Yields Indicate?

The difference between rising global bond yields and falling Chinese bond yields reflects contrasting economic conditions.

• For major economies: Higher yields increase government borrowing costs and may raise borrowing costs for businesses and households, potentially slowing economic growth.
• For China: Lower yields reduce government borrowing costs, but they also reflect weak inflationary pressure and limited demand for investment.
• For global markets: Diverging yields reflect differences in inflation, economic growth, monetary policy and investor demand across countries.

Falling bond yields are therefore not necessarily a sign of economic strength. In China’s case, they may indicate subdued domestic demand and a shortage of attractive investment opportunities.