The yield on China's 10-year government bonds has dropped to 1.68%, with both domestic and overseas funds making similar choices. Just yesterday, I wrote about how major China ETFs listed in the U.S. saw a combined net outflow of around $3.4 billion from May to July. Over the past 12 months, cumulative fund flows have shifted from a net inflow of about $2.4 billion to a net outflow of $1 billion. In simple terms, overseas funds are reducing the weight of Chinese stocks in their portfolios. Now, there’s another noteworthy figure emerging from China’s bond market. The yield on China’s 10-year government bonds has fallen to 1.68%, the lowest since July 2025. A drop in bond yields essentially means more people are buying bonds, driving up their prices and pushing yields lower. So why are so many funds willing to lock in a 10-year return of just 1.68%? (For comparison, the current yield on U.S. 10-year Treasury bonds is nearly 4.7%.) If funds were highly optimistic about future economic growth, inflation, and returns on risk assets, a 1.68% 10-year yield wouldn’t be very attractive. The stronger the future economic growth and the higher the inflation, the more likely interest rates will rise again, which would lead to a drop in the price of long-term bonds purchased now. Overseas funds are reducing their allocation to Chinese stocks, while domestic funds are lowering their appetite for risk assets. The issue in China’s market right now might be that a large amount of capital is unwilling to take on higher risks. As a result, more and more funds are being concentrated in government bonds, deposits, and other low-risk assets. When banks, insurers, and various institutions hold large amounts of capital that need to be allocated, but demand for financing from households and businesses is weak, there are fewer assets that can simultaneously meet the requirements for safety, liquidity, and yield. In the end, they’re left competing for government bonds, driving yields lower and lower. Currently, while there’s plenty of capital in China, there aren’t many willing lenders, and even fewer are willing to take on risk. Funds are finding different ways to reduce their exposure to Chinese risk assets. @Gate Crypto, U.S. stocks, Hong Kong stocks, Korean stocks, gold, CFDs, prediction markets—all-in-one trading platform.