Sri Lanka, March 4 -- SHANGHAI -- China's benchmark yield has dropped to a record low amid deflationary pressures, signaling a heightened risk of the long-term economic stagnation that has plagued Japan.

The yield on China's 10-year government bonds briefly touched 2.341% on Thursday, according to the London Stock Exchange Group. This is the lowest reading in available LSEG data, dipping under the previous trough of 2.352% from June 5, 2002.

The yields rose Friday to close at around 2.38%.

The common thread between Thursday and 2002 is deflationary pressures. Back in 2002, state-owned Chinese banks were grappling with nonperforming loans, which led to depressed internal demand. As a result, the consumer price index was on decline.

Thi...