![Fearing a bank crisis, China is sounding the alarm about a bond market bubble](https://media.cnn.com/api/v1/images/stellar/prod/gettyimages-2152131078.jpg?c=16x9&q=w_800,c_fill)
Fearing a bank crisis, China is sounding the alarm about a bond market bubble
CNN
Money is rushing into Chinese government bonds, sending their prices soaring as investors hunt for a safer alternative to real estate and stocks. Beijing is worried about a bust that could bring down some banks.
Money is rushing into Chinese government bonds, sending their prices soaring and yields plunging to record lows as investors hunt for a safer alternative to the country’s ravaged real estate market and volatile stocks. The yield on China’s onshore 10-year government bond, which is a benchmark for a wide range of interest rates, touched 2.18% Monday, the lowest since 2002 when records began. Yields on 20-year and 30-year bonds are also hovering around historic lows. Bond yields, or the returns offered to investors for holding them, fall as prices rise. Lower borrowing costs should be welcome in an economy struggling to recover from a property crash, sluggish consumer spending and weak business confidence. But the sharp move in bonds is sparking talk of a bubble and triggering acute anxiety among China’s policymakers, who fear a crisis similar to the collapse of Silicon Valley Bank (SVB) last year. The People’s Bank of China (PBOC) has issued over 10 separate warnings since April about the risk that a bond bubble could burst, destabilizing financial markets and derailing the Chinese economy’s uneven recovery. Now it’s doing something unprecedented —borrowing bonds to sell them to tamp down prices. “SVB in the United States has taught us that the central bank needs to observe and evaluate the situation of the financial market from a macro-prudential perspective,” PBOC Governor Pan Gongsheng said at a financial forum in Shanghai late last month. “At present, we must pay close attention to the maturity mismatch and interest rate risks associated with the large holdings of medium and long-term bonds by some non-bank entities,” the central bank governor added. Those entities include insurance companies, investment funds and other financial firms.