I believe everyone who has purchased money funds knows that the yields of money funds have dropped significantly recently. Although money funds are the most popular funds among investors, the decline in returns will inevitably affect many investors. So what is the reason for the continuous decline in the yield of money funds?

What is the reason for the continuous decline in the yield of money funds?

1 Monetary policy

The central bank has gone through two The two RRR cuts and one expansion of the scope of collateral for the medium-term lending facility have released a lot of liquidity in the money market. Affected by the relationship between supply and demand, the relative abundance of money supply will cause the return rate of various assets in the money market to decline. This resulted in a decline in the yields of money funds investing in these assets.

2 New Regulations on Monetary Funds

In the new regulations on monetary funds, it is stipulated that other institutions or individuals other than banks cannot serve as fund advancers, which may cause this type of monetary funds to sources of advance funding have decreased. For this reason, money funds may need to set aside more cash to deal with daily redemptions. However, the more cash you set aside, the less money you have available for investment. Even if the asset income from money fund investment does not change, the reduction in investment funds will cause the overall income to decline.

In general, money funds have strong liquidity and low risks. If you value these two points, it is naturally appropriate to buy money funds. After all, compared with bank demand deposits, even if the income drops The yield rate of money funds is also much higher.