Marsh Investment executives downplay risk of capital flight from China amid record yield spread

The widening yield spread between Chinese and American government bonds is unlikely to trigger catastrophic capital flight from China, according to investment executives at Marsh Investment, who attribute the record spread to the United States’ fiscal pressures and global macro trends rather than a structural retreat for Chinese assets.

The spread between benchmark 10-year US Treasury bonds and equivalent Chinese sovereign bonds hit a record 3.17 percentage points this week. Yields on US Treasury bonds rose to 4.85 per cent – their highest level since 2023 – while China’s 10-year yield held at 1.68 per cent.

While the expanding gap has raised fears that higher US returns could siphon capital away from Chinese assets and weigh on the yuan, executives at Marsh Investments – formerly known as Mercer – downplayed the risk during a media briefing on Thursday.

“In the pantheon of things driving broader moves in the dollar and US rates, we do not see [capital flight] as a major impact compared with other forces at play,” said Niall O’Sullivan, global chief investment officer at Marsh.

O’Sullivan attributed elevated long-term US yields to global supply-demand imbalances, expanding US national debt and heavy corporate borrowing – particularly across the tech and artificial intelligence sectors.

The unusually wide yield gap has also fed broader debate about whether the combination of high US borrowing costs and mounting government debt could eventually weaken the dollar’s dominance in global finance.