China may increase the issuance of government bonds in the next quarter: authorities are accelerating the release of debt instruments to finance stimulus, which could complicate the rally in the bond market. In the first nine months, sales of new local special bonds reached only 81% of the annual quota, according to Bloomberg estimates. If the remaining quota is utilized by the end of the year, issuance in the fourth quarter could exceed 820 billion yuan ($122 billion) – the largest quarterly volume of such securities in nearly five years.
The State Council announced the possibility of additional stimulus on Monday. This reflects the growing concern of the cabinet about economic growth and domestic consumption. Authorities also stated that they might utilize unused quotas from local governments from previous years, suggesting an even larger volume of sales than the remaining 820 billion yuan for 2026.
"The outcomes of the State Council meeting again signal the need to accelerate the issuance and use of various bonds, as well as stabilize investments," said Lynn Sun, chief economist for Greater China at ING Bank NV in Hong Kong. "If we also see a corresponding set of support measures to boost confidence, bond yields may rise by the end of the year."
Chinese bond yields have been declining for the past 12 months: the weakening economy and falling inflation expectations have increased demand for fixed-income instruments. The yield on benchmark 10-year bonds fell to 1.67% last week – the lowest since July 2025. An increase in supply may be sufficient to push yields higher.
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