In the summer of 2023, I wrote a piece for See It Market titled “What Happens to Interest Rates When the Chinese Consumer Recovers?”
The thesis then was straightforward.
After decades of capital treating U.S. Treasuries as the global safe haven, the next big macro shift would come when the Chinese consumer reawakened post-pandemic. A resurgence in Chinese demand would pull capital back toward China, draining liquidity from U.S. Treasuries, driving yields higher into a U.S. economy already showing signs of cooling.
In other words, this would be a set up for stagflation.
At the time, the term was not trending. The conversation was still dominated by “soft landing” scenarios. But the logic was, and still is, rooted in clear market history.
From 1982 to 2012 the S&P 500 and long-term Treasuries rose together as rates fell in a disinflationary era.
From 2012 to 2020 they traded inversely, with Treasuries rallying in crises and money rotating to equities in recovery.
During the 2020 pandemic both rose as global capital fled to U.S. assets in unison.
By 2022 that relationship flipped again, with both falling together as inflation and rates surged.
My point in 2023 was this: If Chinese consumers began spending again while the U.S. economy was slowing, the resulting capital rotation away from U.S. Treasuries could push U.S. bond yields (interest rates) even higher… not from domestic overheating, but from an external demand shock for capital.
Fast forward to 2025.
Chinese stimulus is attempting to revive domestic consumption. U.S. growth is decelerating on Main Street. Bond markets are already seeing historic flows into high-grade corporates as part of a diversification of the safety trade. And the concept of stagflation is now back in the mainstream.
Global capital flows and macro linkages often turn long before the headlines do. In 2023, that made the stagflation thesis easy to dismiss. In 2025, it is a conversation happening on every trading desk.
The author may have positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
