What Happens to Your Money When 1.8% Disappears

10-Year Treasury Yield Is Falling

There is a number that is determining the future wealth trajectory of every Chinese family over the next decade: the 10-year government bond yield.

It is now at 1.8%. Three years ago, it was 2.8%. Five years ago, it was 3.1%.

Why is this number important?

Because it is the “pricing anchor” for the entire financial system.

It is the core anchor for risk-free rates and the benchmark for pricing various long-term interest rates, reflecting market expectations for the economy and inflation.

Bank deposit rates follow it, wealth management product yields follow it, and money fund returns follow it. Every yield figure you see on banking apps is fundamentally anchored to this line.

When this line moves downward, all “risk-free returns” decline accordingly. Over the past five years, this line has been trending downward. More importantly, from a macro fundamental perspective, this trend is likely to continue for a long time.

**In the long-term macro framework, there is a stable rule: long-term interest rates roughly anchor potential economic growth.
**

The 2026 government work report adjusted the GDP target from “around 5%” to “4.5%-5%.”

According to People’s Daily commentary, to achieve the 2035 long-term goal, the average annual GDP growth rate during the “14th Five-Year Plan” and “15th Five-Year Plan” periods only needs to be 4.17%.

CICC’s research also indicates that the economic growth target is “generally aligned” with the 2035 long-term goal, and a gradual slowdown in growth is an inevitable long-term trend.

Economic growth slows down, interest rates follow suit.

Japan experienced a similar process; after the 1990s, government bond yields fell from nearly 8% to near zero.

New Requirements for Market Interest Rate Pricing Self-Regulation Mechanism

We are on the same path, just at different speeds.

And this week, the central bank took another step to accelerate this process.

On March 12, the market interest rate pricing self-regulation mechanism issued new requirements to banks: in interbank overnight deposits (short-term funds between banks), the portion with interest rates above the 7-day reverse repo policy rate (1.4%) must not exceed 10%-20% at quarter-end.

What does this mean?

It means the “special favors” banks used to give each other for higher interest rates are being blocked.

In the past, the policy rate set by the central bank was 1.4%, but many banks, in order to boost their short-term funding at quarter-end, quietly raised the interbank overnight deposit rates to 1.6% or higher. Who ultimately benefited from these high-interest deposits? Your underlying assets in Yu’ebao, money funds, and bank wealth management products. Fund managers allocate your money into these high-interest interbank deposits, earn a spread, and share the returns with you.

According to CITIC Securities, over 7 trillion yuan of interbank deposits face interest rate cuts. Banks’ interbank deposit costs will decrease by about 7 basis points, and overall liability costs will drop by nearly 1 basis point.

A basis point may seem small, but when transmitted to the end, your wealth management and money fund yields could decrease by about 5 basis points. Yu’ebao’s yield dropping from 1.1% to 1.0% or even lower is likely to happen in the next one or two quarters.

(This data is as of March 14, 2026)

But the issue with interbank deposits is not the main point. It seems to reveal a larger trend: the central bank is systematically “eliminating” all “high-interest hiding places.”

Looking back at the past two years, in 2024, large-denomination certificates of deposit rates were pushed down from 3.5% to below 2%, with limited supply.

By the end of 2024, non-bank interbank deposits were incorporated into the self-regulation framework, clarifying that all non-bank interbank overnight deposits, except for financial infrastructure institutions, should reference the 7-day reverse repo rate in the open market to determine reasonable interest rates. This strengthened the link between non-bank deposits and the 7-day reverse repo rate.

In 2025, multiple rounds of deposit rate cuts occurred, and the one-year fixed deposit rate fell below 1%.

By March 2026, high-interest interbank deposits were restricted in their proportion.

The goal is clear: the central bank is lowering interest rates above, but if banks use various “hidden channels” to retain these rates, the effect of rate cuts will not reach the real economy. Companies won’t get cheaper loans, residents won’t feel a reduction in financing costs, and policies will be in vain.

Therefore, blocking the high-interest backdoors is essentially about clearing the interest rate transmission channels.

Ruo Ziheng, Chief Economist at Yuekai Securities, also pointed out when interpreting the government work report that the phrase “promoting low-level operation of the overall social financing cost” has shifted from “pushing down” to “consolidating at low levels.” The central bank’s intention is not to cut rates significantly again but to ensure that the already lowered interest rates are not eaten up by intermediate links.

This is good for the macroeconomy.

For wealth management returns, all we can say is to be prepared for further declines.

Long-term downward trend of interest rates

Here’s the real question: if interest rates continue to decline as a long-term trend, what will happen in a world where “interest rates are getting lower and lower”?

I did some calculations.

In 2020, 1 million yuan in Yu’ebao earned about 20,000 yuan in interest in a year.

In 2023, it was 18,000 yuan.

In 2025, it was 15,000 yuan.

Now, roughly 12,000 yuan.

If the current trend continues, by around 2028, it might be less than 10,000 yuan.

In eight years, “risk-free returns” are nearly halved.

But that’s not the most unsettling part. The most worrying aspect is that while interest rates are falling, prices are rising.

The 2026 government work report included a rare statement:

“Promote the overall price level from negative to positive, with a reasonable and gentle rebound in consumer prices.”

“Consumer Price Index” turning positive has been included in the annual task list. This is almost unprecedented in recent government work reports. It indicates that prices are set to rise.

When interest rates fall and prices rise, there is a simple formula in economics called the Fisher Equation:

Real interest rate = Nominal interest rate – Inflation rate

If wealth management yields 1.5%, and CPI returns to 2%, then the real return is -0.5%.

The state of “negative real interest rate”: your wealth management yield is 1.5%, CPI is 2%, and your real return is -0.5%.

If you save 1 million yuan, it will nominally become 1.015 million yuan after a year. But the cost of goods has risen to 1.02 million yuan.

You think you’re making money, but your purchasing power is shrinking.

And it’s shrinking very slowly—so slowly that you almost don’t notice. By the time you realize it, several years may have already passed.

So what to do?

Let me share four judgments based on interest rate cycle research.

First, long-term interest rates are assets that are disappearing

Some long-term fixed assets with 2%-2.5% interest rates can still be found in the market (such as certain insurance products and ultra-long government bonds).

You might think, 2.5% is too low, not worth paying attention to.

Here’s a real story from Japan.

In the early 1990s, Japan’s savings-type insurance policies had a guaranteed interest rate of 5.5%. After the bubble burst, interest rates kept falling, and insurance companies kept lowering their guaranteed rates—4%, 3%, 2%, 1.5%…

By the early 2000s, Japanese people who had locked in high rates early on called these policies “お宝保険”—“treasure policies.” Insurance companies had to honor their commitments even at a loss because contracts are contracts. Those Japanese families who hesitated and thought “interest rates will come back someday” waited thirty years, and rates never recovered.

Japan’s lesson may not fully apply to China, given different economic structures and policy spaces. But one underlying logic is consistent: in a declining interest rate cycle, “locking in” is itself a form of return.

Second, property income is becoming a policy focus

This time, the government work report emphasizes “increasing residents’ property income,” which is very significant.

Over a decade ago, property income accounted for only 2.7% of total income for Chinese residents. By 2024, it had risen to 8.3%. That’s a big improvement, but still far behind developed economies. Reports say that in the US in 2023, this ratio approached 16%, sometimes exceeding 20%.

The gap indicates potential. Potential is the direction of policy efforts. The government work report also states more directly that “government investment funds should lead in long-term capital.”

In other words, the national team will enter the market long-term, support the market, and guide a slow bull market. Relying solely on savings and wages is no longer enough to beat the trend. The government is guiding you to earn returns through the capital markets.

Third, cash flow assets will become increasingly scarce

Over the past twenty years, the main way Chinese people made money was “buy and wait for appreciation”—buying property expecting prices to rise, buying stocks expecting stock prices to go up.

This model depended on rapid economic growth and continuous upward momentum in asset prices.

But as the economy shifts from high-speed to medium-speed growth, large increases in asset prices will become less frequent. At this point, steady, reliable cash flow returns become more scarce.

High-dividend stocks, dividend ETFs, publicly traded REITs—these assets generally have dividend yields of 3%-5%, much higher than wealth management products.

During Japan’s “Lost Thirty Years,” the best strategy was not chasing growth stocks but holding high-dividend portfolios.

When the 10-year government bond yield drops to 0.5%, a stock with a stable 4% dividend becomes a rare resource.

China’s high-dividend assets are likely in the early stages of a similar “value discovery” process. Of course, equity assets are volatile and not suitable for full allocation.

But in a environment of sustained falling interest rates, gradually shifting some funds from “risk-free low yields” to “moderate volatility and medium returns” is no longer a question of “whether to do it” but “when to start.”

Fourth, reconsider the proportion of cash assets

If your financial assets consist of more than 60% in current deposits, Yu’ebao, and money funds, then under the dual pressure of falling interest rates and rising inflation expectations, your wealth may be shrinking every day.

It’s not that you should hold no cash at all. Liquidity reserves are necessary; having enough for six months of living expenses is sufficient.

But beyond that, leaving money idle is essentially bearing an invisible “opportunity cost.” It won’t show as a loss on paper, but your purchasing power is being eroded day by day.

Using the day as a mirror

We oppose the practice of citing Japan when studying China’s economy. China is not Japan. Its economic resilience, policy space, demographic structure, and industrial upgrading potential are all different. Simple comparisons are irresponsible.

But one rule has been repeatedly validated in all industrialized economies: as economic growth slows, interest rates tend to follow.

In a world of declining interest rates, there are two types of people: those who act early—locking in returns, adjusting their portfolios, and making their money “start earning”—and those who wait, hoping interest rates will return and the era of easy profits will come again.

The former may not always earn the most, but they will definitely not be left behind by the times.

Today, China’s 10-year government bond yield is about 1.8%.

Maybe in a few years, people will look back and feel the same way:

That once “too low” number is actually a time that will never return.

★ Disclaimer: The above reflects only the author’s personal views and is for reference, learning, and communication purposes only.

Source: Mikuang Investment (ID: mikuangtouzi)