China’s Long Debt Pressures Grow

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China is increasingly relying on longer-maturity sovereign bonds to secure funding, but the shift is adding strain to the bond market as rising supply meets weakening demand. The growing stock of long-term debt is pushing yields higher and testing investors’ appetite for duration risk.

A decade-high reliance on long maturities

Data compiled by Bloomberg show that bonds with maturities beyond ten years now account for about 31% of China’s outstanding central and local government debt. This is the highest share in a decade and a sharp increase from just 11.6% in 2018, underscoring Beijing’s growing dependence on long-term borrowing to support fiscal expansion.

Rising yields signal market stress

The surge in long-dated issuance is already weighing on prices. China’s 30-year sovereign yield has climbed about 10 basis points this month to roughly 2.28%, close to a one-year high. At the same time, demand for long maturities is being undermined by stronger equity performance, ongoing efforts to combat deflation and improving US-China trade relations.

Analysts warn that the imbalance between supply and demand is likely to worsen into 2026, as issuance volumes are expected to remain elevated.

Banks pull back from duration risk

Chinese banks, among the largest buyers of government bonds, have become more cautious about absorbing ultra-long maturities. The heavier emphasis on long-tenor issuance increases portfolio duration and heightens interest-rate risk, limiting banks’ capacity to take on additional supply.

As yields rise, these risks become more pronounced, reinforcing reluctance among traditional buyers.

Auction pricing shows widening premiums

Signs of stress are also evident at debt auctions. The spread between average coupons on 30-year local government bonds and comparable sovereign issues has widened noticeably this year. In eight of the past twelve months, the gap exceeded 20 basis points, compared with just one such instance in 2024.

This trend suggests investors are demanding higher compensation for holding long-dated and regional debt, reflecting growing concerns about duration and credit risk.

Potential shift in borrowing strategy

With appetite for long-term bonds fading, Chinese authorities may eventually need to adjust their issuance strategy. Other major economies, including the UK and Japan, have already tilted toward shorter maturities to ease market tensions and investor resistance.

Market participants believe Beijing could follow suit, while also allowing greater flexibility in banks’ risk management rules and adjusting issuance maturities to better align with demand.

As International Investment experts report, China’s expanding pile of long-term debt has become a structural source of pricing pressure in the bond market. In the near term, it is likely to keep yields elevated and volatility higher, while over the medium term it may force policymakers to rebalance fiscal ambitions with the limits of investor demand.