In recent times, the allure of financial markets has taken a considerable hit, evident by the dip in returns from popular investment vehicles like Yu'ebaoFor instance, one investor, Xiao Li, expressed disappointment upon realizing that her investment of 100,000 yuan in Yu'ebao fetched her a meager daily return of only 3.5 yuanThis frustration is echoed by many as the financial landscape shifts under their feet.

Social media buzzed with the news on December 9 as the term "Yu'ebao yields drop to historical lows" made its way into trending topicsChecking her account, Xiao Li noted that the seven-day annualized yield of the Tianhong Yu'ebao fund reached an all-time low of 1.267%, translating to a paltry yield of 0.3448 yuan for every 10,000 yuanFrom a recent high of 1.3%, the plummeting yields left her feeling disheartened"It's truly getting lower and lower," she lamented, a sentiment shared by many investors.

The trend of declining yields isn't isolated to Xiao Li's experience but reflects a broader phenomenon within the money market funds in China

As of December 9, over 24% of the reported 90 money market funds saw returns fall below 1.3%—a stark contrast to the expected returns that were once a givenMarket sentiment has shifted dramatically, leading to countless posts on social platforms where anxious investors regarded their returns as insufficient for basic needs, such as breakfast costs.

A user reminisced when yields were significantly higher, stating, "When Yu'ebao launched, I earned nearly 2 yuan daily for a 10,000 yuan investment." This comparison showcased how far these returns have plummeted to less than 0.36 yuan todayThe nostalgic tone hinted at a larger sentiment of loss the investors are feeling as the financial climate shifts.

Despite the dwindling returns, the movement of funds away from money market investments hasn't yet occurredInstead, the first three quarters of 2023 saw the scale of these funds grow by a remarkable 1.76 trillion yuan, making them the most substantial growth segment in the fund industry

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Xiao Li remained pragmatic about her decision to invest in Yu'ebao, emphasizing its stability and convenience despite the plummeting yield.

A new low in returns

As China’s largest public fund, often dubbed the "financial tool of the internet," Yu'ebao recently made headlines—not for stellar performance, but for its dropping yields.

The latest data from December 11 confirmed that the fund maintained its yield at 1.267%, down significantly from the year’s peak of 2.453%. Such declines in yield raise questions among investors regarding the sustainability of their returns.

Xiao Li noted that the drop in returns has decreased by nearly half compared to early in the yearShe understood the reasons behind the yield drop, pointing out a general decline in both large fixed deposits and bank interest rates that justified the change.

As investment insiders explained, the main drivers behind the declining yield for money market funds like Yu'ebao result from lowered interbank deposit rates

For instance, approximately 67.16% of the fund's assets were allocated to bank deposits and liquidity reserves, with nearly 90% of its fixed-income holdings attributed to interbank certificates of deposit.

The Tianhong Yu'ebao fund reported an astonishing total share of 763.648 billion shares, signifying its unparalleled dominance within the money market sectorDespite its epic decline, the fund's net asset value grew by 613.95 billion yuan throughout 2023. What had once seen yields exceed 6% has seen a stark decline, particularly since falling below 2% in 2020.

This trend extends beyond Yu'ebao alone, as the collective yield across the money fund environment continues to fallAs of December 9, the average yield for market participants showed 1.45%, while around 60% had yields dropping below 1.5%, and some even below 1%. This consistent downturn raises palpable concerns among investors.

Amid this landscape, a fund research analyst noted that recent government calls for heightened fiscal and monetary policy adjustments aimed to lower reserve requirements would naturally push down yields

The central bank is expected to continuously support downward shifts in money market rates while advocating for the stability of the economy.

With cash and deposits making up nearly 47% of money market funds, the persistent drop in deposit rates has further eroded the underlying returns of these financial productsRecent regulations imposing stricter guidelines on interbank deposit rates will likely exacerbate the declining trend.

This year, a looser monetary policy landscape has seen the central bank cut interest rates significantly, prompting further downward pricing in shorter-term assetsThe introduction of self-discipline measures for market interest rate settings has also improved the transmission efficiency, leading to markedly lower interest returns for preventing inflation.

Investors favor stability

Interestingly, the challenges faced by the Yu'ebao fund haven't resulted in a mass exodus of capital, with the size of money market funds growing steadily this year.

According to the most recent data from the Asset Management Association of China, funds across strategies like equity, mixed funds, and bond funds have decreased in scale, with only money market funds attracting significant investments, swelling an additional 439 billion yuan in October alone.

Ownership of money market funds surged impressively, reaching a historical high of 1.852 billion investors by the end of the second quarter—an increase of 62.71 million accounts

By the third quarter, the scale reached 13.03 trillion yuan, marking a considerable rise since the end of 2023.

A millennial investor expressed a sentiment echoed by many, stating: “Even if the returns are low, I’d rather prioritize stability.” They find that investing idle funds in Yu'ebao provides additional earnings when compared to bank ratesAn older investor concurred, noting that even with reduced returns, Yu'ebao offers improved interest over traditional savings.

Despite plummeting yields, investor behavior demonstrates a preference for secure, liquid investment options within a climate of increased economic uncertaintyThe understanding of financial stability has shifted significantly, with many now valuing liquidity and ease over sheer yield.

Industry experts have observed a recent trend of savings migrating toward bank-managed cash products which often include investments in money market funds

This shift, alongside institutional investors' cautious stance, has only served to enhance the profile of money market funds.

Many market experts continue to regard money market funds as pivotal avenues for managing day-to-day cashTheir integral role in personal finance is undisputed amidst the ongoing changes.

According to Zhi Yuan, a fund manager, money market funds serve as the bridge between liquidity and returns, functioning as convenient "electronic wallets" for everyday individualsThey maintain significant relevance even as average yields yield to economic pressuresThe dual functionalities of these funds have solidified their position among investors.

While yield declines persist, data shows that many funds still generate decent returns, particularly in tumultuous market conditions

For example, the Tianhong Yu'ebao fund, despite the environment, still managed to generate around 9.3 billion yuan for investors in the first three quarters of 2024.

Market conditions have shifted dramatically, altering individuals' risk tolerancesInvestors now typically exhibit a preference for products with confirmed security and liquiditySince the explosion in electronic payments, many are now using money market funds in conjunction with online shopping, further intertwining everyday finance with these investment vehicles.

Future challenges ahead

Currently, many investors, like Xiao Li, are left pondering whether money market fund yields will continue to decline and how to select superior offerings amidst this downturn.

Most financial analysts surveyed agree that the downward trend for money market fund yields is likely to persist.

An insider forecast that macroeconomic indicators would suggest a push for more proactive fiscal policies and moderately loose monetary policies in 2025. This implies movement toward facilitating lower money market yields to bolster economic attributes.

According to expectations, unless there is an unexpected economic rebound in the next three to six months, the likelihood of maintaining a dovish monetary policy looms large

Recent adjustments indicating leniency imply the potential for more interest reductions while attempting to streamline monetary policy operations.

Zhi Yuan commented that due to these continued pressures, the short-term yield for money market funds might still dip furtherYet, if economic demands gradually stabilize, yields could rebalance in due course, hinting at a potential recovery in the future.

For Xiao Li, whose conservative investment style guides her choices, she plans to continue investing in money market fundsAlthough facing lower yields, she admits she has begun to conduct thorough comparative analyses to select optimal funds, taking note of varying management fees along with their respective yields.

As per the fund evaluation center's insights, prioritizing higher seven-day annualized yields and experienced fund managers are pivotal in selecting effective investment options.

Despite the overall trend of declining yields and rising fund sizes, several industry experts forecast that growth rates of money market funds may slow

The turbulence of the previous years, combined with downward shifts in yields, prompts a reassessment of investor behavior.

High growth patterns for the segment can be traced back to a period from 2016 to 2018, wherein Yu'ebao and other financial innovations took market share aggressivelyYet, given the decline in yields, the profound attractiveness that once drew investors may weigh down future expansion.

In conclusion, while significant growth in money market funds occurred throughout the earlier years, as financial practices evolved, so too will the environmentThe competitive landscape is set for a recalibration of priorities where holding onto high liquidity proves crucial rather than stretching for yield.

Given the proliferation of existing funds and diminishing returns, the growth trajectory of money market funds will likely slow, but it will remain a critical component of the broader financial ecosystem.