The gap between Chinese and US 10-year government bond yields is approaching a record high, as an intensifying sell-off in US Treasuries pushes American borrowing costs sharply higher and raises the risk of capital outflows from China.

The yield on the US 10-year Treasury note has climbed to 4.81%, while China's 10-year bond yield stands at 1.69%, widening the spread between the two benchmark sovereign yields to 312 basis points.

A wider yield differential in favour of US assets typically makes dollar-denominated debt more attractive to global investors relative to Chinese bonds, increasing pressure on capital flows out of China. The differential also feeds into foreign exchange dynamics: higher US yields tend to support the dollar against other currencies, which can pressure the yuan and constrain the People's Bank of China's room to ease monetary policy further, since aggressive rate cuts at home would widen the gap even more.

The backdrop for the divergence is sharply different monetary policy stances. China's low 10-year yield reflects continued monetary easing and subdued domestic demand in the world's second-largest economy, while the US sell-off signals investor demands for higher compensation to hold long-dated American government debt amid persistent fiscal deficits and inflation concerns. The spread is now close to the record level touched in 2025, when the differential last widened to historic extremes.

What to watch next is whether Chinese authorities respond with measures to stem capital outflow pressure, such as tighter controls on cross-border fund movement or FX market intervention to steady the yuan, and whether upcoming US inflation data and Treasury auctions cool or further fuel the bond sell-off.

Source: CNBC-TV18