China’s Bond Market ‘Collapses’ Amid A‑Share Rally, Sparking a Stock‑Bond Seesaw.

That morning, mainland A‑shares surged on the Shanghai and Shenzhen exchanges, buoyed by optimism over a string of corporate earnings, policy hints and a renewed appetite for risk. At the same time, the fixed‑income corner of the market was on the defensive. The benchmark 10‑year Treasury yield nudged up three basis points to 1.775 percent, while the 30‑year benchmark climbed about five basis points to 2.1 percent. In the futures arena, 30‑year Treasury bond contracts posted their largest single‑day decline in more than five months, and the 30‑year Treasury bond exchange‑traded fund (ticker 511090) finished the session down 1.26 percent. On Weibo, investors summed up the dichotomy in a single, pithy line: “股市大涨，债市崩了” – the stock market surged, the bond market collapsed. Some even likened the bond market to a “blood bag” that was being drained to feed the equity surge.

The August 18 episode was not an isolated flash in the pan. A week earlier, during the period August 11‑17, bond yields were already on an upward trajectory, with the 30‑year Treasury approaching the 2.0‑percent mark. Analysts traced that movement to a mix of domestic liquidity tightening, a series of wealth‑management product redemptions and the lingering impact of a “bond‑bull market” that many now believe may be entering its final chapter.

Looking back, the pattern is familiar. In March 2024, market observers described what they called the “largest adjustment in nearly two years.” The 10‑year yield rose for two consecutive days, while 30‑year futures fell sharply. Fund managers on a Beijing‑based public fund and on Southern Fund warned that the era of cheap, easy bond returns could be ending. A month earlier, in December 2023, the 30‑year Treasury futures slipped nearly one percent on the 24th after a period of forced‑selling‑like rallies that had begun to lose steam. October 2023 saw a comparable swing, with equities climbing while bond prices dropped, prompting an earlier wave of “债市崩了” commentary.

The roots of these episodes run deep. In 2017 the People’s Bank of China introduced the “Bond Pledge‑style Repurchase Transaction Settlement Risk Control Guidelines,” a set of rules that reshaped leverage caps and forced a wave of deleveraging among onshore bond participants. The policy change sent shockwaves through bond prices, laying a foundation for the market’s sensitivity to later liquidity shifts.

Today, the most recent adjustment appears to be driven primarily by a powerful equity market that is siphoning capital from fixed‑income assets. A chorus of voices on Weibo – from retail investors to seasoned fund managers – voice frustration and surprise at what they perceive as an uneven battlefield. Many colleagues who had moved money from stocks to bonds expecting a correction now find their bond holdings slumping just as equities blaze ahead. The sentiment is palpable: the bond market has become a “zero‑sum game” where one side’s gain comes at the other’s expense, and some investors speculate that the influx of funds into equities could provoke a shortants dissected first round of adjustments, attributing the shift to strong expectations of epidemic‑prevention optimization, relaxed real‑estate policies and the negative feedback loop generated by massive wealth‑management redemptions. Southern Fund warned of short‑term adjustment pressure and highlighted the need to monitor redemption flows. A large public fund in Beijing pointed to profit‑taking after a prolonged rally and the People’s Bank of China’s marginal tightening of liquidity as catalysts. Insurance funds, long stalwarts of the bond market, are also trimming holdings in favor of equities, adding to the pressure on yields.

The ripple effects extend beyond the trading floor. Higher bond yields translate directly into higher borrowing costs for corporations, developers and local governments. For industries that rely heavily on debt financing – real estate, infrastructure and capital‑intensive manufacturing – the squeeze can stall projects, delay construction and curtail expansion plans. Meanwhile, the equity surge, fueled in part by the same capital that flees bonds, can boost sectors such as technology and consumer discretionary, creating a lopsided growth pattern.

For ordinary savers and retirees, the shift is a double‑edged sword. Pension funds, insurance companies and wealth‑management products that have traditionally held blocks of government allocations to gain the rally, but the heightened volatility associated with a rapid capital reallocation brings its own set of risks.

Policymakers are now navigating a delicate balancing act. The People’s Bank of China has hinted at recovering funds from the market and guiding marginal tightening, moves that aim to curb excessive liquidity but also contribute to higher yields. On the global stage, investors are watching the U.S. Federal Reserve closely; expectations of dovish moves or interest‑rate cuts could temper worldwide bond‑market stress and, by extension, influence Chinese yields. Yet the interplay between domestic policy, global monetary trends and investor sentiment makes any forecast tentative at best.

The broader implications for China’s financial stability are clear. A sustained bond‑market downturn could raise government borrowing costs, pressuring fiscal spending on public services and infrastructure. If local‑government debt faces tighter financing conditions, the affect‑investor confidence, prompting a re‑evaluation of China’s place in global capital flows.

Politically, a bond‑market shock tests the credibility of economic stewards. The government’s response – whether through targeted liquidity er wealth. While the current seesaw has not yet triggered widescale unrest, the narrative of a “collapsed” bond market adds a layer of urgency for policymakers.

In sum, “债市崩了” is more than a catchy tagline; it encapsulates a series of linked market dynamics, policy decisions and investor psychology that have converged over the past year. The August 18 surge in A‑shares and simultaneous bond‑market sell‑off illustrates a growing “stock‑bond seesaw” where capital seeks the higher‑return side, leaving the other side under pressure. As the bond market contends with rising yields, tighter liquidity and shifting institutional allocations, its health will continue to shape corporate financing, household wealth, and the broader trajectory of China’s economy. Observers, both at home and abroad, will be watching closely to see whether the bond market can recover its footing or whether the collapse will deepen, prompting a new round of policy responses and market recalibrations.