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Falling Chinese bond yields signal concern with deflation

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Falling Chinese bond yields signal concern with deflation

China’s government bond market has opened 2025 with a clear warning for policymakers: without more determined stimulus, investors expect deflationary pressures to become even more entrenched in the world’s second-largest economy.

China’s 10-year bond yield, a benchmark for economic growth and inflation expectations, fell to a record low of less than 1.6 per cent during trading last week and has since hovered close to that level.

Crucially, the whole yield curve has shifted downwards rather than steepening, suggesting investors are alarmed about the long-term outlook and not just anticipating short-term cuts to interest rates.

“For the long-term [bonds], yields have been trending down and I think that’s more about longer-term growth expectations and inflation expectations becoming more pessimistic. And I think that trend is likely to continue,” said Hui Shan, chief China economist at Goldman Sachs. 

Falling yields offer a stark contrast to volatile and rising yields in Europe and the US. For Beijing, the fall represents an ignominious start to the year after policymakers in September launched a stimulus drive designed to revive the Chinese economy’s animal spirits.

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But data released on Thursday showed consumer prices remained close to flat in December, eking out growth of just 0.1 per cent on a year earlier, while factory prices declined 2.3 per cent, remaining in deflationary territory for more than two years.

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China’s central bank last year unveiled policies to stimulate investment by institutions in equity markets and announced for the first time since the 2008 financial crisis that it was adopting a “moderately loose” monetary policy. 

On Friday, it announced a “shortage of supply” meant it would pause its programme that has seen it purchase a net Rmb1tn of government bonds on the open market.

An important Communist party meeting on the economy in December, presided over by President Xi Jinping, emphasised consumption for the first time over other previously more important strategic priorities such as building high-tech industries.

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The change of emphasis reflects concern over household sentiment weakened by a three-year property crisis that has left the economy more dependent on a manufacturing and export boom for growth. Investors worry this run of strong exports will slow abruptly after US president-elect Donald Trump takes office on January 20 with promises to levy up to 60 per cent tariffs on Chinese goods.

Citi economists estimated in a research note that a 15 percentage point increase in US tariffs would reduce China’s exports by 6 per cent, knocking a percentage point off GDP growth. Growth in China was estimated to be 5 per cent last year.

Line chart of Government bond yields (%) showing China's yield curve has shifted downwards at all maturities

More insidious than the slower growth, however, are the deflationary pressures in China’s economy, said analysts. The Citi economists noted that the final quarter of last year was expected to be the seventh in a row in which the GDP deflator, a broad measure of price changes, was negative.

“This is unprecedented for China, with a similar episode only in 1998-99,” they said, pointing out that only Japan, parts of Europe and some commodity producers had experienced such an extended period of deflation.

Chinese regulators are aware of the parallels with Japan on deflation, said Robert Gilhooly, senior emerging markets economist at Abrdn, but “they don’t seem to act like it, and one thing that contributed to the Japan example was going small with piecemeal easing”.

Goldman’s Shan said the central bank had promised to ease monetary policy this year, but just as important would be a large increase in China’s fiscal deficit at the central and local government levels.

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Line chart of CN10YT bid yield (%) showing China's 10-year yields have fallen sharply in recent months

How that deficit is spent will also be important. Channelling it directly to low-income households, for example, might have a higher “multiplier effect” than giving it to other sectors, such as to banks for recapitalisation, she said.

Frederic Neumann, chief Asia economist at HSBC, said another reason government bond yields were at record lows was that the economy was awash with liquidity. High household savings and low demand for corporate and individual loans have left banks flush with cash that is finding its way into bond markets.

“It’s a little bit of a liquidity trap in the sense that there is money, it is available, it can be borrowed cheaply, but there’s just no demand for that,” said Neumann. “Monetary easing at the margin is becoming less and less of an effective driver of economic growth.”

Without a strong fiscal spending package, the deflationary cycle might continue, with interest rates dropping, wages and investment falling and consumers deferring purchases while they wait for prices to fall further.

“Some investors have lost a little bit of patience here in the past week,” he said, referring to the rush into bonds. “It’s still likely we’re going to get more stimulus coming through. But after all the fits and starts of the past couple of years, investors really want to see concrete numbers.”

Some economists warned that the slide in Chinese bond yields could have further to fall. Analysts at Standard Chartered said the 10-year yield could fall another 0.2 percentage points to 1.4 per cent by the end of 2025, especially if the market has to absorb higher net central government bond issuance for stimulus purposes.

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Video: Disappearance of ‘Today’ Host’s Mother Is a Crime, Investigators Say

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Video: Disappearance of ‘Today’ Host’s Mother Is a Crime, Investigators Say

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Disappearance of ‘Today’ Host’s Mother Is a Crime, Investigators Say

Savannah Guthrie’s mother, Nancy Guthrie, 84, was last seen on Saturday near her home in Tucson, Ariz. The Pima County sheriff said on Monday that “she did not leave on her own.”

We saw some things at the home that were concerning to us. We believe now, after we processed that crime scene, that we do, in fact, have a crime scene. That we do, in fact, have a crime. She is very limited in her mobility, right? We know she didn’t just walk out of there. There are other things at the scene that indicate she did not leave on her own. We know that. This is an 84-year-old lady who suffers from some physical ailments — is in need of medication, medication that if she doesn’t have in 24 hours, it could be fatal. So we make a plea to anyone who knows anything about this, who has seen something, heard something, to contact us. We’re now moving forward where we need to depend on technology — our license plate readers, our camera systems throughout the community, anything, everything. And we will download all that data we have and we will use that to our advantage. Thank you so much for being here.

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Savannah Guthrie’s mother, Nancy Guthrie, 84, was last seen on Saturday near her home in Tucson, Ariz. The Pima County sheriff said on Monday that “she did not leave on her own.”

By Meg Felling

February 2, 2026

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The Trump Administration exempts new nuclear reactors from environmental review

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The Trump Administration exempts new nuclear reactors from environmental review

The Advanced Test Reactor at Idaho National Laboratory. The laboratory will soon be home to five new test reactors being built by private companies. Supporters hope the reactors will power data centers needed for Artificial Intelligence.

Idaho National Laboratory


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Idaho National Laboratory

The Trump Administration is excluding new experimental reactors being built at sites around the U.S. from a major environmental law that would have required them to disclose how their construction and operation might harm the environment. The law also typically required a written, public assessment of the possible consequences of a nuclear accident.

The exclusion comes just days after NPR revealed officials at the Department of Energy had secretly rewritten environmental, safety and security rules to make it easier for the reactors to be built.

The Department of Energy announced the change Monday in a notice in the Federal Register. It said the department would begin excluding advanced nuclear reactors from the National Environmental Policy Act. The act requires federal agencies to consider the environment when undertaking new projects and programs.

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The law also requires extensive reporting on how proposed programs might impact local ecosystems. That documentation, known as an Environmental Impact Statement, and a second lesser type of analysis, known as an Environmental Assessment, provide an opportunity for the public to review and comment on potential projects in their community.

In its notice, the Energy Department cited the inherent safety of the advanced reactor designs as the reason they should be excluded from environmental reviews. “Advanced reactor projects in this category typically employ inherent safety features and passive safety systems,” it said.

The exemption had been expected, according to Adam Stein, the director of nuclear energy innovation at the Breakthrough Institute, an environmental think tank that studies nuclear power and the tech sector. President Trump explicitly required it in an executive order on nuclear power he signed last May.

Stein says he thinks the exclusion “is appropriate” for some reactors in the program, and notes that previous reactors built by the Energy Department have not been found to have significant environmental impacts.

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But critics of the proposed exemption questioned whether the new reactors, whose designs’ differ from earlier ones, really are as safe as claimed.

Until now, the test reactor designs currently under construction have primarily existed on paper, according to Edwin Lyman, director of nuclear power safety at the Union of Concerned Scientists, a non-profit environmental advocacy group. He believes the lack of real world experience with the reactors means that they should be subject to more rigorous safety and environmental reviews before they’re built.

“The fact is that any nuclear reactor, no matter how small, no matter how safe it looks on paper, is potentially subject to severe accidents,” Lyman said.

Seeking Swift Approval

The move to exclude advanced reactors from environmental reviews comes amid a push to build multiple such reactors by the summer.

The Energy Department’s Reactor Pilot Program is seeking to begin operations of at least three advanced test reactors by July 4 of this year. The program was initiated in response to the executive order signed by President Trump, which was designed to help jump start the nuclear industry.

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The reactors are being built by around ten nuclear startups, which are being financed with billions in private capital, much of it from Silicon Valley. The goal, supporters say, is to develop new sources of electricity for power-hungry AI data centers.

Last week, NPR disclosed that officials at the Department of Energy’s Idaho National Laboratory had extensively rewritten internal rules for the new test reactors. The new rules softened protections for groundwater and the environment. For example, rules that once said the environment “must” be protected, now say consideration “may be given to avoiding or minimizing, if practical, potential adverse impacts.”

Experts were critical of the changes, which were shared with the companies but not disclosed to the public. The new rules constitute “very clearly a loosening that I would have wanted to see exposed to public discussion,” Kathryn Huff, a professor of plasma and nuclear engineering at the University of Illinois Urbana-Champaign who served as head of the DOE’s Office of Nuclear Energy from 2022 to 2024, told NPR after reviewing the documents.

In a statement to NPR, the Energy Department said the new rules continue “to protect the public and the environment from any undue risks.”

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“DOE follows applicable U.S. EPA requirements in these areas,” it said.

Environmental review not needed

The decision to exclude the reactors from conducting environmental reviews means there will be less of an opportunity for the public to comment. But the environmental review process may not be an appropriate forum for such discussion anyway, Stein noted.

“I think that there’s a need for public participation, particularly for public acceptance,” he said. But he added, “the public just writing comments on an [Environmental Impact Statement] that ultimately would get rejected doesn’t help the public have a voice in any way that would shape any outcome.”

The Energy Department did not respond to NPR’s request for comment about the new exclusion, but in its Federal Register notice and an accompanying written record of support, it said that such reviews were unnecessary. The new reactors have “key attributes such as safety features, fuel type, and fission product inventory that limit adverse consequences from releases of radioactive or hazardous material from construction, operation, and decommissioning,” according to the notice.

Lyman said that he vehemently disagreed with that assessment.

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“I think the DOE’s attempts to cut corners on safety, security and environmental protections are posing a grave risk to public health, safety and our natural environment here in the United States,” he said.

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Video: How Trump’s Tariffs Affected the Economy After One Year

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Video: How Trump’s Tariffs Affected the Economy After One Year

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One of Donald Trump’s central campaign promises was to raise tariffs on imports from multiple countries. Ana Swanson, a New York Times reporter, analyzes data from the past year to examine how those tariffs have affected the economy.

By Ana Swanson, Leila Medina and June Kim

February 2, 2026

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