In Q3 2025, money market funds (MMFs) experienced above-seasonal growth in scale. The net asset value of MMFs reached 14.67 trillion yuan, an increase of 452.7 billion yuan from the previous quarter and a year-on-year rise of 606.3 billion yuan. Earlier in Q1, regulatory adjustments on interbank deposits led to a decline in MMF yields and a contraction in scale. However, Q2 and Q3 saw a rebound in MMF growth, driven by structural factors such as deposit rate cuts by small and medium-sized banks and increased allocations by fund-of-funds (FOFs).

The average seven-day annualized yield of MMFs dropped from 1.34% in June to 1.21% in September, a decline of 12.45 basis points (bps). While large banks maintained deposit rates, the yield spread between MMFs and one-year fixed deposits narrowed from 38.78 bps in June to 26.33 bps in September. However, smaller banks began cutting rates in August, reducing the relative appeal of deposits. Coupled with strong equity market performance in Q3, institutional investors (particularly FOFs) increased MMF allocations, pushing year-on-year net asset growth from 7.9% in June to 12.5% in September.

Despite this, the widening spreads between interbank rates (R007), negotiable certificates of deposit (NCDs), and MMF yields in Q3 may weaken institutional demand for MMFs. Investors now have alternatives such as direct lending (via repo agreements) or NCD investments, which offer higher returns.

MMF yield distributions continued to shift downward, with 78% of funds yielding below 1.4% in Q3—up 38 percentage points quarter-on-quarter. Average monthly yields for July–September were 1.25%, 1.21%, and 1.21%, respectively, reflecting looser liquidity conditions and declining NCD rates.

In asset allocation, MMFs increased deposits by 210.3 billion yuan while reducing bond holdings by 155.6 billion yuan. Bonds now account for 51.89% of portfolios (down 2.15 percentage points), with deposits rising to 27.75% (up 0.78 percentage points). Within bonds, NCDs represented 83.47% of bond investments despite a 267.6 billion yuan reduction.

Portfolio duration edged up to 84.92 days (from 83.16 days in Q2), while leverage dipped slightly to 105.23%. Duration remains near historical highs, with leverage at neutral levels.

Looking ahead, MMF yields may decline further, slowing scale growth as their yield advantage over deposits diminishes. Risks include unexpected policy shifts, liquidity changes, and data discrepancies.

Separately, NCD-focused funds grew by 4.577 billion yuan in Q3 to 130.4 billion yuan, with the number of funds rising to 103. Average fund size fell to 12.66 billion yuan from 21.49 billion yuan at end-2023.