In recent developments, China has seen a significant decline in its 10-year government bond yield, which has dropped below the 1.7% mark, currently sitting at 1.6774% as of January 1, 2025. This decrease has important implications for the financial market, particularly impacting the pricing mechanisms for various financial assets, such as bonds, loans, and wealth management productsThe result is a pervasive downward trend in yield rates across the board.

Experts in the financial sector have noted that with the era of low interest rates firmly in place, the yields on fixed-income products are expected to face continuous pressure in the foreseeable futureConsequently, they recommend that investors adopt a diversified investment strategy, which includes geographical diversification as well as variety in the types of assets they choose to allocate their resourcesThis approach aims to mitigate potential risks associated with the evolving financial landscape.

The challenges facing fixed-income products are becoming increasingly apparent

To understand why the 10-year government bond yield has plummeted to around 1.7%, Feng Lin, Executive Director of the Research and Development Department at Dongfang Jincheng, shared insights with reportersApart from the influences of the year-end investment rush, she pointed out that these circumstances create a broader space for monetary policy maneuvering, prompting the bond market to start pricing in expectations of forthcoming interest rate cuts for 2025.

Additionally, Gao Chengfei, Director of Guangzhou Tiaoyuan Marketing Consultancy, noted that the implementation of self-regulatory pricing mechanisms for interbank deposits has led to a reduction in both interbank demand deposit rates and corporate deposit ratesThis has lessened banks' interest margin pressure and reduced financing costs, consequently boosting investments in the bond market, thereby further driving down yields on 10-year government bonds.

Historically, fixed-income products have dominated wealth management sectors, with bonds forming a substantial portion of asset holdings

• Pitfalls of the Forex Market
• Competition in the Billion-Dollar Data Market
• Manufacturing Sector Sees Three Months of Growth
• Industry Giants Push for Real-World Tech Deployment
• 2025 Treasury Market: Trends and Drivers

However, the market currently faces two significant shiftsThe first is the rollout of pricing regulations for non-bank interbank deposits, while the second stems from modifications in monetary policy that have contributed to a further decline in government bond yieldsThese changes are, in turn, affecting the yields and asset allocation strategies of wealth management products.

The advent of the asset management new regulations has altered the landscape for wealth management products, breaking away from guaranteed returns and emphasizing net value managementAs a result, the market has grown increasingly sensitive to interest rate fluctuations, and the yield on fixed-income products is likely to mirror changes in market ratesA representative from Guangyin Wealth Management remarked that with the implementation of non-bank interbank deposit pricing rules, there will be significant effects on the supply and demand dynamics, as well as the pricing strategies within the interbank market

This shift will inevitably impact the investment returns on fixed-income products as well.

Another research analyst, Li Wenyuan from Puyis Standard, pointed out the implications of self-regulation for interbank depositsThis regulatory move aims at alleviating the liability pressures experienced by banks while also compressing the profitability associated with deposit allocationsThe repercussions of this change are felt most acutely by cash management products heavily reliant on non-bank interbank deposits, whose yields may decline in responseMeanwhile, with the recent adjustment in monetary policy, marked by a potent expectation of forthcoming interest rate cuts, government bond yields have dipped, strengthening bond market performanceOver the past month, the average annualized yield on fixed-income products has shown an uptick compared to previous monthsHowever, it is essential to recognize that in a low-rate market environment, fixed-income products are likely to experience downward pressure on yields in the future.

As further explained by the Guangyin Wealth Management representative, for fixed-income products centered on bonds, the diminishing interest income from newly purchased bonds coupled with the potential capital gains from rising bond prices might not sufficiently offset the loss in interest revenue, thus increasing reinvestment risks and leading to reduced yields.

In the context of these evolving market dynamics, diversification in asset allocation has become an imperative focus

Feng Lin suggested that with the central bank signaling a "moderate easing" stance, coupled with future rate cuts expected, the bond market trends are yet to reverseHowever, with 10-year government bond yields swiftly declining to around 1.7%, the market appears to have substantially priced in expectations for 2025 interest rate reductions, leading to some discrepancies in market sentiment and institutional behaviorThe upcoming short-term scenarios in the bond market are anticipated to be characterized by volatility, driven by profit-taking activities and reallocation strategies.

Amidst the low-interest-rate terrain, investors are seeking fresh directions for asset allocationThe Guangyin representative noted that multi-asset allocation would stand as a key investment theme going forwardIn traditional fixed-income assets, optimizing the allocation structure through duration strategies and swing trading can capture gains during the yield-downward trajectory

Furthermore, identifying high-quality credit bonds for potential investment and selectively choosing specific securities can enhance ticket returns.

In addition to establishing a foundation with fixed-income assets, investors might consider incrementally increasing their allocations to "equity-like" assets, such as convertible bondsThis strategy leverages the low correlation among various assets to mitigate risks while aiming for stronger performanceExpanding investment horizons to include the likes of gold, preferred shares, overseas assets, and real estate investment trusts (REITs) would also be prudent.

Li Wenyuan continued to emphasize that moderate increases in the proportion of convertible bonds in fixed-income products, alongside greater investments in equities, derivatives, and commodity assets, could bolster the structural flexibility and potential yields of investment portfolios

Moreover, exploring multiple strategies and diversified asset allocations could effectively reduce portfolio risk while striking an optimal balance between yield and risk.

In this low-interest rate environment, aside from fixed-income products, where should stable, risk-averse individuals direct their investment funds? According to the Guangyin representative, who runs investment management, a diversified configuration is recommended, which encompasses both geographical and asset type varietyFor funds requiring high liquidity and with lower risk tolerance, cash management products or money market funds may prove beneficialFor those willing to accommodate moderate risk while seeking higher expected returns than conventional cash assets, options include fixed-income or "fixed income+" productsA portion of excess funds could also be allocated to gold, overseas investments, or alternative assets.

Lastly, Li Wenyuan posited that investors might find benefit in bonds with equity-like characteristics, such as convertible bonds and exchangeable bonds, which maintain a level of stability yet possess potential for upward mobility