Small and Medium-Sized Banks Buy 1-Year Treasury Bonds Yielding 1.2% at a 1.6% Deposit Cost, an Inverted Rate Spread

In the first half of 2026, large banks were net sellers of ultra-long-term government bonds with maturities of more than 20 years to the tune of 911.6 billion yuan, while small and medium-sized banks were net sellers of 321.5 billion yuan of such bonds and net buyers of 1.98 trillion yuan of short-term government bonds with maturities of less than one year. Meanwhile, rural commercial banks have deposit costs of about 1.6% to 1.9%, while the yield on one-year government bonds is only about 1.2%. Banks are buying bonds at a loss, reflecting the pressure of an asset shortage and an inverted rate spread.