It's not U.S. Treasury bonds! Amid the flames of war, the world's only safe haven is actually Chinese government bonds!

```

Since the outbreak of the Iran War, global bond markets have experienced massive sell-offs, yet Chinese government bonds have bucked the trend to become the sole safe haven.

Since the conflict started, the yield on China’s 10-year government bonds has slightly declined to 1.82%, while the yield on U.S. 10-year Treasuries surged by 38 basis points to 4.34%, and British government bond yields soared by 70 basis points during the same period.

This diverging trend indicates that, amid soaring energy prices and rising global inflation, investors are viewing Chinese government bonds as a rare safe haven asset.

Jason Pang, Senior Portfolio Manager and Head of Asia Local Rates and FX at J.P. Morgan Asset Management, said Chinese government bonds “offer investors like us an investment option with very low correlation.”

Energy Structure and Low Inflation Build the Firewall for China’s Bond Market

The core logic behind investors betting on Chinese government bonds lies in China’s inherent ability to resist this energy shock.

Unlike most economies in Europe and Asia, which are highly dependent on imported energy, China’s energy structure is relatively diversified, with coal and renewable energy taking significant shares. At the same time, China has a large strategic petroleum reserve, which allows it to be somewhat insulated from this energy shock—while South Korea, Japan and Southeast Asian neighbors are facing greater pressure.

Mitul Kotecha, Head of Asian FX and Emerging Market Macro Strategy at Barclays, pointed out, “China is less affected by energy transmission, and its economic starting point is also completely different.” He added that the People’s Bank of China is in a “different position” compared to other central banks and “still expects further easing in China.”

In contrast, the Federal Reserve and the European Central Bank are being forced to maintain higher interest rates to tackle inflationary pressure, putting bond prices under strain.

Aside from macro fundamentals, the resilience of China's government bond market also benefits from its unique demand structure, with large numbers of domestic investors shifting funds toward government bonds. It is precisely this low correlation with global bond markets that has enabled Chinese government bonds to hold their own during this global sell-off.

Global Investors Reassess the Long-Term Value of China’s Bond Market

Although the yield of China’s government bonds has rebounded since early last year, global institutional investors’ interest in the market continues to rise.

Charles and Louis-Vincent Gave, co-founders of research firm Gavekal, stated in a recent report, “Since 2012, investing in Chinese government bonds has been one of the few ways for global government bond investors to beat U.S. inflation. All other major bond markets have suffered substantial real losses, and some markets, such as Japan, Germany, and the UK, even saw nominal negative returns over these 14 years.”

Meanwhile, the uncertainty of Federal Reserve policy has also invisibly raised the relative appeal of Chinese government bonds. Trump’s continued pressure on Fed Chair Powell to cut rates has confused the market about the direction of U.S. monetary policy. Wei Li of BNP Paribas said, in contrast, the People’s Bank of China’s monetary policy is “quite predictable”, and “when investors buy government bonds, the last thing they want to see is this kind of uncertainty. What they need most is stability.”

Risk Warning and DisclaimerThe market involves risks, and investments should be made cautiously. This article does not constitute personal investment advice, nor does it take into account any individual user's particular investment objectives, financial situation, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific circumstances. Invest at your own risk. ```