China sovereign yield curve
China Government Bonds (CNY) — full term structure, 2s10s and 3m10y spreads, NY Fed recession probability, Nelson-Siegel-Svensson fit.
Data as of June 30, 2026Term structure
| Tenor | 3M | 6M | 1Y | 2Y | 3Y | 5Y | 7Y | 10Y | 20Y | 30Y |
|---|---|---|---|---|---|---|---|---|---|---|
| Yield (%) | 1.42 | 1.48 | 1.55 | 1.62 | 1.72 | 1.85 | 1.98 | 2.10 | 2.42 | 2.50 |
Term structure with NSS fit
Observed yields (markers) overlaid with the Nelson-Siegel-Svensson smoothed fit (orange).
Dashed line = current policy rate (3.10%).Recession probability — 12 months ahead
Estrella-Mishkin probit (NY Fed): P(recession) = Φ(-0.5333 - 0.6629 × spread3m10y).
Nelson-Siegel-Svensson parameters
Fit residual RMSE: 0.022 pp. See the NSS methodology page for the parametric form.
| β₀ | β₁ | β₂ | β₃ | λ₁ | λ₂ |
|---|---|---|---|---|---|
| 2.888 | -1.467 | -0.755 | -1.522 | 1.50 | 5.00 |
How to read this country's curve
Look first at the 10-year yield in the headline tiles above — that is the benchmark long-term borrowing cost for this country. Then compare it to the policy rate set by the central bank. If the 10-year is meaningfully above the policy rate, investors expect rates to stay supportive of growth; if it sits below, the market is pricing rate cuts ahead.
Next, check the 2s10s and 3m10y spread tiles. Green numbers mean the curve is sloping up in the normal way (longer bonds yield more). Red numbers mean the curve is inverted — long bonds yield less than short bonds, which historically precedes a slowdown. The deeper the inversion, the stronger the warning signal, although the lag between inversion and recession typically runs 12-24 months.
Finally, the recession probability at the top combines the 3m10y spread with the NY Fed's statistical model. A reading above 30% is the conventional caution threshold; above 50% historically meant a recession was the base case within a year. For non-US countries this is a useful comparative signal but the exact level should be read with care.
Interpreting the NSS parameters for this country
The four estimated betas decompose the curve into orthogonal factors. β₀ is the long-run level — the asymptotic yield as maturity goes to infinity, interpretable as the market's terminal nominal anchor (steady-state real rate plus expected inflation). β₁ is the slope factor; a negative β₁ produces an upward-sloping curve while a positive β₁ flattens or inverts the front end. β₂ and β₃ govern two curvature humps controlled respectively by λ₁ and λ₂ years — the maturities at which each curvature factor peaks. Diebold-Li (2006) show β₀+β₁ converges to the instantaneous short rate and β₀ to the consol yield, providing direct factor-model intuition.
On the recession probability: the reading uses the Estrella-Mishkin (1998) coefficients calibrated on US post-war NBER data. For developed-market peers (Eurozone, UK, Canada, Australia, Switzerland) the cross-country mapping is broadly defensible, but the absolute level is indicative, not literal — local probit re-estimation (Moneta 2005 for the euro area; Chinn-Kucko 2015 for OECD comparators) typically yields slightly weaker, but still significant, predictive coefficients. The reading is best treated as a relative-rank signal across our nine-country set rather than an unconditional probability.
A final caveat: the spread input embeds both an expected-policy component and a term-premium component. When the ACM term premium is compressed by structural demand for duration (LDI flows, central-bank balance-sheet residuals, foreign reserve recycling), an inverted curve can flag elevated probability without indicating that aggressive easing is priced. Cross-checking the model against survey-based policy expectations and against the country's own forward OIS curve disciplines the signal.
What the CGB curve is signalling
China’s Government Bond (CGB) curve is unique among major sovereigns because the People’s Bank of China operates a multi-rate framework rather than a single policy rate. Headline policy rates (1Y MLF, 7-day reverse repo) are around 3.10%, but interbank market rates have drifted well below that as the central bank has targeted easier financial conditions. CGB yields are: 3-month at 1.42%, 2-year at 1.62%, 10-year at 2.10%, and 30-year at 2.50%. The curve is upward-sloping but strikingly flat in absolute level terms.
Inversion status and term spreads
The CGB curve is not inverted: 2s10s of nearly 50 bp, 3m10y above 60 bp. The Estrella-Mishkin probit gives a low recession probability — but this is one of the cases where the model maps least usefully. China’s growth-rate slowdown, rather than outright recession, is the relevant macro question, and the bond curve is a poor leading indicator in a market with substantial state ownership of the bid side and capital controls limiting cross-border flows.
What the curve says about PBOC expectations vs market pricing
The CGB curve embeds these views:
- Market participants price further policy easing from the PBOC as the housing-market overhang and demographic drag continue to weigh on aggregate demand.
- The very low level of CGB yields relative to nominal GDP growth has prompted PBOC officials to publicly express concerns about a “Japanification” risk — long-duration bond yields trading well below trend nominal growth.
- The 30-year at 2.50% reflects strong domestic demand for safe duration as Chinese households and institutions reduce real-estate exposure.
Nelson-Siegel-Svensson fit
The CGB curve fits NSS well, though the parametric form arguably understates the structural weakness signalled by the very low level of yields. Level factor near 2.5%, modest negative slope, small curvature. ChinaBond and the PBOC publish their own official curve estimates that incorporate liquidity adjustments. See the NSS methodology page.
Cross-references
- People’s Bank of China overview — multi-rate framework, RRR, meeting cadence.
- Real interest rate tracker — China real rate.
- Recession probability dashboard — China in cross-country context (interpret with caution).
- Nelson-Siegel-Svensson methodology.