The writer is chief economist for Asia Pacific at Natixis and senior research fellow at Bruegel
For a brief moment in the opening days of the Iran crisis, it seemed as though China might finally be dragged into the global reflation trade. Ten-year Chinese sovereign bond yields nudged upward from 1.83 per cent on February 27 right before the US-Israeli attack on Iran to 1.90 per cent on March 9 — a move in sympathy with the broader trend in bond markets worldwide on rekindled inflation fears.
Traders were, for once, treating China like everywhere else but they were wrong to do so. Within weeks, those yields had retraced their modest climb and returned to 1.82 per cent on April 3. That quiet reversion is a more eloquent piece of economic commentary than almost anything published in official communiqués. It is the market’s verdict that China’s deflationary undertow remains dominant — and that verdict deserves to be taken seriously.