China

China’s bond market is still pricing deflation — prices falling or barely rising, which makes existing debt heavier in real terms — while the rest of the world fights the opposite problem. The 10-year Chinese government bond yields 1.68% against a 10-year US Treasury at 4.97%, a gap near the widest since the series began in 2002. The PBoC has left its loan prime rates unchanged for 15 straight months. Consensus frames that record gap as a US term-premium story with China the passive side, which underweights what a yield pinned at 1.68% says domestically: growth and inflation expectations have not moved even with oil at $100, a real terms-of-trade hit for a huge net energy importer. The falsifiable hook is in the trade data — August customs show refined copper import volumes down about 10% year over year while the price stays firm. Price and physical demand are diverging, and the world’s largest buyer’s physical demand is the more reliable anchor.

Loan prime rate fixing around 20 September; customs trade releases around 14 October and 13 November. Watch also for any genuine resolution at Vanke or Wanda Commercial, both at restricted default per Fitch.

A 10-year CGB break above 1.9–2.0% on sustained data would signal the deflation pessimism is lifting. A cut in the 1-year LPR below 3.0% would confirm more downside than August’s CPI uptick suggested. Copper import volumes turning positive year over year in the next customs release undercuts the fade directly. Access note: the CGB market itself, the cleanest expression of this view, runs through Bond Connect/CIBM and is effectively institutional-only, which is why the tradeable version here is copper. Related warning sign: ICE BofA EM Corporate OAS at 131bp and EM High Yield at 279bp are both at the 0th percentile of the trailing year — priced for a benign world with no cushion.