Recently, several small and medium-sized banks have lowered deposit rates, with reductions ranging from 15 to 40 basis points across different maturity products, and some long-term deposits seeing cuts as steep as 80 basis points. Against the backdrop of declining interest rates, a broad-based drop in money market fund yields below 1% may be imminent.
Since October, regional banks have initiated a new round of deposit rate cuts, with over 10 institutions announcing adjustments. The reductions primarily target fixed-term deposits, typically between 15 and 40 basis points, though some long-term products saw steeper declines.
As deposit rates fall, returns on financial products, including money market funds, are also affected. These funds invest in instruments like negotiated deposits and interbank certificates of deposit, whose yields decline alongside interest rates, further pressuring fund returns.
Data from Wind shows that as of October 16, more than 80 money market funds had seven-day annualized yields below 1%. Analysts at Caitong Securities note that, given the need to support economic fundamentals, fiscal policy, and mitigate banking risks, broad-based interest rate declines are likely to persist. A widespread drop in money market fund yields below 1% seems inevitable.
Despite shrinking returns, money market fund assets have grown this year. According to the Asset Management Association of China, total assets reached 14.81 trillion yuan by August-end, up 1.2 trillion yuan from 13.61 trillion yuan at the end of 2022. Since May, assets have consistently exceeded 14 trillion yuan.
The resilience of money market funds lies in their relative advantages over bank deposits in risk-adjusted returns and liquidity management.
For instance, while major banks like ICBC, ABC, and others cut one-year, three-year, and five-year deposit rates to 0.95%, 1.25%, and 1.3%, respectively, with demand deposits at just 0.05%, money market funds still offer higher average seven-day yields than demand deposits and are comparable to one-year fixed deposits.
Moreover, money market funds provide greater convenience, with low entry thresholds (as little as 1 yuan), T+0 or T+1 redemptions, and seamless integration into payment ecosystems (e.g., Yu’E Bao), making them ideal for short-term liquidity needs.
In China’s current rate-cutting cycle, investors should adjust expectations for returns on idle cash. Money market funds remain a practical tool for short-term holdings, balancing accessibility and liquidity despite diminishing yields.
Risk Disclosure: Investing in money market funds is not equivalent to bank deposits, and fund managers do not guarantee returns or principal protection.
Disclaimer: The information herein is sourced from reliable channels and analyst judgments, but no guarantees are made regarding accuracy or completeness. Opinions are subject to change without notice. This material should not replace independent investment decisions. Market risks apply; invest with caution.
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