What Happens to Your Money When 1.8% Disappears

The 10-year government bond yield is declining

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

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

Bank deposit rates follow it, financial 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” also decline. 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 rates.

The 2026 government work report adjusted the GDP target from “about 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 15th and 16th Five-Year Plans only needs to be 4.17%.

Research by China International Capital Corporation (CICC) also indicates that the economic growth target is generally aligned with the 2035 vision, and a gradual slowdown in growth has become a foreseeable long-term trend.

As economic growth slows, interest rates also decline.

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

Market interest rate pricing self-regulation mechanism’s new requirements

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

Just this week, the central bank took another step that accelerated this process.

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

What does this mean?

It means the “special treatment” for high-interest interbank deposits is being blocked.

In the past, the policy rate set by the central bank was 1.4%, but many banks, to boost their scale at quarter-end, quietly raised the interbank demand 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 demand 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.

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

(These are the yields 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 non-bank interbank demand deposits, except for financial infrastructure institutions, should reference the 7-day open market reverse repurchase rate to determine interest rates reasonably. This strengthened the link between non-bank deposits and the 7-day reverse repo rate.

In 2025, multiple rounds of deposit rate cuts occurred, with one-year fixed deposit rates falling below 1%.

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

The goal is clear: the central bank is lowering interest rates here, but if banks use various “hidden channels” to retain the interest, 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 “backdoor” for high interest is essentially clearing the channels for interest rate transmission.

Lu 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” last year 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 macroeconomics.

As for investment returns, the only thing to do is to prepare for continued decline.

The long-term trend of declining interest rates

At this point, the real question to consider is: if interest rates continue to decline as a long-term trend, what will happen to your money 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 annually.

In 2023, about 18,000 yuan.

In 2025, about 15,000 yuan.

Now, roughly 12,000 yuan.

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

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

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

The 2026 government work report included a rare statement:

“Promote the general price level from negative to positive, with moderate and reasonable consumer price increases.”

The phrase “CPI turning positive” was added to the annual task list. This is almost unprecedented in recent government work reports. It indicates that prices are going upward.

When interest rates decline and prices rise, there is a simple economic formula called the Fisher Equation:

Real interest rate = Nominal interest rate – Inflation rate

If your financial return is 1.5%, and CPI returns to 2%, then your real return is -0.5%.

A “negative real interest rate” state: your financial return is 1.5%, CPI is 2%, so your real return is -0.5%.

If you save 1 million yuan, nominally it becomes 1.015 million yuan after a year. But the goods you buy have already increased in price to 1.02 million yuan.

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

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

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 locked-in assets with yields of 2%-2.5% still exist in the market (such as certain insurance products and ultra-long government bonds).

You might think 2.5% is too low and not worth it.

Here’s a real story from Japan.

In the early 1990s, Japan’s savings-type insurance policies had a guaranteed 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 pay out even at a loss because contracts are contracts. Meanwhile, Japanese families who hesitated, thinking “interest rates will come back,” waited thirty years, and rates never recovered.

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

Second, property income is becoming a policy focus

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

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

The gap represents potential, and that potential is a policy direction. The government work report also states more directly: “Government investment funds should lead in patient capital.”

In other words, the state 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 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 for rising prices, stocks for increasing share prices.

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

But as the economy shifts from high to medium speed, large asset price increases 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 traditional 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 similar “value discovery.” Of course, equity assets fluctuate, so full allocation is not advisable.

But in a declining interest rate environment, gradually shifting some funds from “risk-free low yield” 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 demand deposits, Yu’ebao, and money funds, then in a scenario of falling interest rates combined with rising inflation expectations, your wealth may be shrinking daily.

It’s not that you should hold no cash. Liquidity reserves are necessary; having enough to cover 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 reference

We oppose drawing parallels between China and Japan when analyzing China’s economy. China is not Japan; its economic resilience, policy space, demographic structure, and industrial upgrade potential are different. Simple comparisons are irresponsible.

However, 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 allocations, and making their money “grow”—and those who wait, hoping interest rates will rebound and the era of easy profits will return.

The former may not always earn the most, but they won’t 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:

That once “too low” number is actually a sign of an era 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)