Asia in Focus

Latest edition · September 13, 2026

Asia in Focus China Gauging the Impact of Government Bond Supply on Bond Yields

China's government bond net issuance is projected to accelerate to 1% of GDP per month across September–October 2026 following July Politburo directives. Goldman Sachs finds this supply primarily creates temporary upward pressure on front-end yields via interbank funding rather than inducing a sustained or long-end bond sell-off.

In response to softer growth momentum and slow fiscal disbursement in H1 2026, Chinese government bond issuance is accelerating, with net issuance expected to reach 1% of GDP monthly across September and October. Empirical regression analysis shows that a 0.2% of GDP increase in net CGB issuance lifts 1-year CGB yields by 4.8bp, compared to only 1.5bp on the 10-year yield, driving a bear-flattening rather than steepening dynamic. Because interbank repo rates remain anchored to PBOC OMO targets and domestic credit demand is weak, supply-driven yield spikes are likely to remain temporary, with Chinese bond yields continuing their structural downward trend over the long run.

Key takeaways from the latest edition

• 1.Total government bond net issuance (central and local) is projected to reach ~1% of GDP per month in September–October 2026, up from 0.6% in H1.
• 2.CGB issuance primarily transmits via interbank funding pressure to front-end yields rather than long-end risk premia, causing yield curve flattening.
• 3.Local Government Bond (LGB) issuance shows no clear relationship with CGB yields, as incremental supply is absorbed via wider LGB-CGB spreads and issuance coordination.

What this series covers

• China: Gauging the Impact of Government Bond Supply on Bond Yields
• Gauging the Impact of Government Bond Supply on Bond Yields

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