It is the story that matters, not just the ending. – Paul Lockhart, “A Mathematician’s Lament” (2009)
It is the story that matters, not just the ending.
For nearly two decades, the relationship between U.S. and Chinese long-term yields has traced the story of global growth itself. After the Global Financial Crisis, U.S. Treasury yields spent more than a decade below China’s bond yields as quantitative easing, zero interest rates and a persistent savings glut defined the post-2008 world. China’s bond market, by contrast, offered higher nominal yields consistent with higher growth and inflation expectations.
That order broke in 2022 as U.S. inflation surged while China’s prices stagnated, creating the widest inflation gap in over a decade. Treasury yields moved higher across the curve, pushing the 30-year yield above 5% at its peak. At the same time, China’s long yields fell steadily toward 2% as its economy weakened under property market stress and recurring deflationary episodes. The yield spread between the two widened to record levels, a mirror image of the post-GFC era.
Trade policies also contributed to the yield divergence. For years, China exported deflation to the U.S. by selling goods cheaper than the U.S. could produce domestically. If trade between the U.S. and China decreases or becomes more expensive, this could remove a deflationary force that has been helping keep U.S. yields low. Higher U.S. long-term yields could also signal concerns about deficits and profligate fiscal policies that are more prevalent in the U.S. than China. Currently, the debt-to-GDP ratio of the U.S. is 125% while China’s is less than 90%. Since early 2025, the lines have begun to move back toward each other: U.S. long-term yields are softening while China’s have edged higher. The divergence of the past three years is narrowing. Chinese long yields have lifted from post-GFC lows; after two years of deflation, even a small rise signals improving expectations as credit stabilizes and policy support steadies prices.
The timing is striking. Post-“Liberation Day” in early April, both markets turned together: U.S. yields eased from their highs while China’s rose. That same month, inflation gaps narrowed as U.S. prices cooled and China’s steadied, mirroring the pattern in yields.
This alignment says something about where both economies stand. The U.S. seems to be easing off an overheated pace while China is climbing out of a long slowdown. Their long yields are meeting in the middle, hinting at a world where growth is cooling but not collapsing.
It could mean the extremes of the past three years are behind us: U.S. inflation has normalized, and China’s deflation has faded. Moments like this are worth noticing. When the world’s two largest bond markets move together, the shift often marks a new phase in the cycle.
Whether the convergence continues will depend on the persistence of these trends. If U.S. growth weakens, Treasury yields could fall more sharply. If China’s recovery gains traction, its yields might rise a bit more. For now, the chart captures a rare inflection shared by the world’s two largest economies.
Between the Lines is a weekly blog by DoubleLine Portfolio Managers Sam Garza, Joseph Mezyk and Quant Analysts Fei He, CFA and Sunyu Wang that breaks down topical macro and market issues. For questions or suggestions please e-mail us at betweenthelines@doubleline.com. The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of DoubleLine Capital LP, its affiliates or employees.
