The current development in the Chinese bond market is partly the result of mild inflation and expectations of a slowing economy, Mr. Deng said. “At the same time, short-term interest rates will likely stay elevated because the authorities will keep borrowing costs high so as to facilitate the deleveraging campaign,” he said. Since last summer, Beijing has embarked on a campaign to reduce long-term financial risk caused by reckless lending behavior among banks and leveraged investing that has created one asset bubble after another.