Gavekal Research: China's government bonds' safe-haven attributes are highlighted, becoming a new global reserve alternative beyond U.S. Treasuries.

Gavekal Research research shows that China’s government bonds have performed resiliently after recent geopolitical shocks, including the Iran war, and are increasingly becoming a practical alternative reserve asset.

The report challenges a core assumption in global reserve management: that U.S. Treasury bonds and the U.S. dollar are “safe havens.” Analysts Charles Gave and Louis‑Vincent Gave wrote in a report on Tuesday that Chinese sovereign bonds remained solid during a period of heightened tension in the Middle East.

The report notes that China’s long-dated government bonds rose over the year following the outbreak of the COVID-19 pandemic and remained relatively stable over the 12 months after the start of the war in Ukraine. By contrast, U.S. Treasuries, adjusted for currency movements and changes in gold prices, look less impressive.

At the same time, the report argues that the strength of China’s sovereign debt is rooted in its ability to produce more electricity at a lower cost than any other country, which shields its bond market from oil-driven inflation shocks. Strategists pointed out that since 2012, Chinese bonds have been one of the few fixed-income markets that have outperformed U.S. inflation.

Gavekal says China’s dominant position as a global superpower in industry and trade also supports the appeal of China’s sovereign debt as a global reserve asset. This industrial strength suggests that the era of undervalued currency may be coming to an end.

The analysts wrote: “In a world with inflation, tariffs and maintaining significantly undervalued exchange-rate policies may be put on the shelf. What replaces them might not be a tariff war, but trade agreements—more solar panels sold to the U.S., freer movement of rare earths, and a stronger renminbi.”

They further noted: “In such a world, incremental buy-side demand may shift from gold and U.S. Treasuries to the renminbi and other Asian currency–denominated income-producing assets.”

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Edited by Guo Jian