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3 times a year!What does it mean that the deposit rate will fall again?

3 times a year!What does it mean that the deposit rate will fall again?

3 times a year!What does it mean that the deposit rate will fall again?
3 times a year!What does it mean that the deposit rate will fall again?

Last Friday, the listed interest rate of bank deposits was lowered again. Led by the five major state banks, the listed interest rates of 1/2/3/5-year time deposits were reduced by 10-25bp to 2.0% and below respectively. This is also the third round of large-scale reduction of the listed deposit interest rate in the past one year. What are the reasons for the continuous decline in deposit interest rates, and how should we allocate assets in the context of falling interest rates?

3 times a year! The fixed deposit interest rate has been reduced to 2% and below

3 times a year!What does it mean that the deposit rate will fall again?

This round is the third round of reductions in the listed interest rate of bank deposits in the past year, and the fourth round since September last year. At present, the listed interest rate of fixed deposits of large state-owned banks with a tenor of less than five years has dropped to 2% or below.

The current round of reductions continues the law of "the longer the term, the greater the reduction", and the listed interest rates of fixed deposits with tenors of 1 year and less, 2 years, 3 years and 5 years have been reduced by 10bp, 20bp, 25bp and 25bp respectively. In just one and a half years before the first round of cuts in September 2022, the five-year interest rate fell most significantly, from 2.75% to 2.0%, and the rest of the maturities also fell to varying degrees.

Chart: Tracking of the average listed interest rates of state-owned banks since September 2022

3 times a year!What does it mean that the deposit rate will fall again?

What will be the impact of the decline in deposit rates?

3 times a year!What does it mean that the deposit rate will fall again?

Since April 2022, when the PBOC established the "Market-based Adjustment Mechanism for Deposit Interest Rates", member banks can adjust deposit interest rates with reference to the yield of government bonds and the interest rate of the loan market.

In recent years, the 10-year Treasury bond yield and the 1-year LPR have both fallen, so it is reasonable to adjust the deposit rate along the way.

Chart: Treasury bond interest rates and loan rates have generally declined in the past three years

3 times a year!What does it mean that the deposit rate will fall again?

number

occupy

Source:

wind, sampling interval:

2020/12/22-2023/12/22。

What are the possible positive effects of the decline in deposit rates?

 First, from the bank's point of view, it is conducive to alleviating cost pressures.

We know that the main source of profit for banks is the "deposit and loan spread". A fall in lending rates (e.g. 1-year LPR) means that banks' profits will be compressed. Therefore, lowering the deposit rate is one of the measures to alleviate the cost pressure on banks.

Furthermore, when deposit rates fall and bank costs fall, it may open up room for future loan interest rates to fall, thereby helping the economic recovery.

 Second, it is expected to guide capital inflow into the capital market and promote investment.

Treasury bonds are bonds issued by the state and are backed by national credit, so the yield of government bonds and the interest rate on bank deposits are often regarded as the representative of the risk-free rate of return, and the direction of funds is often "compared" and selected between the two. Previously, deposit rates for most maturities were often higher than Treasury yields over the same period.

This round of downward adjustment has further reduced the attractiveness of deposits, which is expected to guide residents' savings to flow to investment and bring incremental growth to the capital market.

 Third, it will help boost consumption and expand domestic demand.

At present, the confidence and expectations of enterprises and residents are relatively weak, and on the financing side, the growth rate of household debt is significantly lower than that of corporate and government debt expansion. In the context of weak demand elasticity, the reduction of deposit interest rates is expected to transform residents' savings into consumption and help the demand side of the real economy recover.

Interest rates are falling, how to allocate assets?

3 times a year!What does it mean that the deposit rate will fall again?

From a long-term perspective, many economies around the world as a whole are in the channel of falling interest rates - with the development of the times, the slowdown of economic growth, and the decline in the prices of various assets, it will be more difficult to obtain investment returns, and the downward trend of interest rates is also the general trend.

Chart: 1989-2022 The overall interest rate of the representative country in the world has fallen

3 times a year!What does it mean that the deposit rate will fall again?

for

Responding to a low interest rate environment,

Overseas insurance asset management institutions have carried out a series of asset allocation measures

, perhaps worth our reference:

 The first option is to increase equity investment to strive for income flexibility.

● Taking Japan as an example, due to the environment of long-term low interest rates and negative interest rates, Japanese life insurance companies are widely seeking investment targets with higher returns in the global market, and the proportion of foreign assets has increased significantly from 5.2% in 2008 to 26.6% in 2021, and the investment income in 2021 mainly comes from the contribution of domestic stocks and foreign securities. (Source: LIAJ Japan Life Insurance Association, Guotai Junan Securities)

● The U.S. life insurance industry has also significantly increased its allocation to equity assets to match the new floating income products on the liability side. From 1987 to 2021, the proportion of stocks in the asset allocation of American life insurance increased from 9.2% to 33.0% to obtain relatively stable long-term investment returns. (Source: Wind, Guotai Junan Securities)

 The second method is to optimize the fixed income structure and obtain credit spreads and liquidity premiums.

● Taking Allianz as an example, its allocation to corporate bonds has continued to increase, almost doubling in the past decade, while the proportion of AAA-rated bonds has dropped to 17.8% in 2022, and BBB investment-grade bonds have risen to 28.5%, appropriately tapping credit opportunities under the premise of controllable risks. (Source: Company Annual Report)

● For institutional investors, duration adjustments can be made, for example, U.S. life insurance companies can extend the duration of assets to match the duration of liabilities: from 2010 to 2021, their allocation to bonds with maturities of 10-20 years and 20 years and above increased by 4.4% and 7.6% respectively, reducing reinvestment risks and obtaining liquidity premiums. (Source: ACLI American Life Insurance Board)

In the face of low interest rates, through scientific and reasonable asset allocation, it is expected to obtain excess returns other than the risk-free interest rate by taking certain risks.

On the equity asset side, recent broad-based index funds and related enhanced funds

Relatively popular. In addition to high transparency and low fees, index funds can keep up with the overall market temperature more quickly in the context of low stock market valuations. "Enhancement" refers to the passive tracking of the index on the basis of striving to surpass the index and tap alpha through a certain amount of active management.

Bond funds are also an upgrade option for idle money management. The average annualized return of the medium and long-term pure bond fund index was 3.49%, with a maximum drawdown of -1.75% during the period, and the average annualized return of the short-term pure bond fund index was 2.95% during the same period, with a maximum drawdown of -0.76% during the period

(截至2023/12/22,来源wind)

。 From the perspective of underlying assets, short-term bonds are less sensitive to changes in market interest rates than long-term bonds, so the expected returns and volatility will be lower.

Perhaps it is better to believe this famous saying now: "The pessimists are right, and the optimists move forward". Uncertainty is often a friend of long-term investors.

Set the Industrial Securities Global Fund as a "star". ⭐

Don't miss out!

3 times a year!What does it mean that the deposit rate will fall again?

Good texts are preferred

3 times a year!What does it mean that the deposit rate will fall again?

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Science and technology innovation for good and sustainable development | Fudan Management Institute · The second lecture of the Xingdong ESG Lecture Hall

With 3 million copies sold worldwide, what does Money Psychology tell us?

3 times a year!What does it mean that the deposit rate will fall again?

Reference:

"The Significance of Deposit Rate Reduction", GF Securities

"Review and Impact Calculation of Deposit Interest Rate Adjustment", GF Securities

"Deposit Interest Rates Have Dropped Again! Big Banks and Joint-Stock Banks Have Taken Action, and Large Certificates of Deposit Have Been Lowered," Beijing Business Daily

"Responding to the Long-term Low Interest Rate Environment with Simultaneous Financing and Liability - Global Insurance Asset Management Mirror Series Report", Guotai Junan Securities

Risk Warning: China Industrial Securities Global Fund promises to manage and use the fund assets in good faith, diligence and responsibility, but does not guarantee that the fund will be profitable, nor does it guarantee the minimum return, investors should carefully read the fund contract, prospectus and other documents of the fund and choose the investment varieties suitable for their own risk tolerance when investing in the company's funds. The mainland fund has been in operation for a relatively short period of time and does not reflect all stages of the development of the stock market. The performance of other funds managed by the fund manager or the performance of other funds previously managed by the fund manager does not constitute a guarantee of the performance of the fund. Views are personal and do not necessarily represent the position of the company and are for informational purposes only.

3 times a year!What does it mean that the deposit rate will fall again?

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