Wealth Management Product Yields Edge Lower in July as Liquidity Improves

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Yields on wealth management products in China have seen modest declines since the start of July, as the central bank adopts measures to shore up market liquidity.

According to data from PY Standard (普益) the average closed-end anticipated yields for yuan-denominated wealth management products have shown a trend of steady, incremental decline across the first three weeks of July, with readings of 4.58%, 4.56% and 4.55% respectively.

Prior to July yields on WMP’s – a key mainstay of China’s burgeoning shadow banking sector, saw successive gains across eight consecutive weeks, amidst market concerns about liquidity and borrowing costs.

Since the start of the month, however, the People’s Bank of China’s efforts to shore up liquidity have eased tightness of capital and improved the health of bank balance sheets, prompting a decline in WMP yields.

“Today’s WMP market is different from 2014,” said one analyst to 21st Century Business Herald. “At that time bank WMP funds were allocated towards high yield assets that could maintain the high yields on debt.

“Against the current deleveraging background, however, banks do not have many high yield allocations on the asset side, so bank WMP’s themselves cannot maintain high yields over the long term.”

Regulators have also issued guidance cues for reductions in WMP yields, due to concerns over risk in relation to pernicious competition between banks for scarce funds.

“M2 continues to see low growth, and banks are under significant pressure to compete for funds.

“Joint-stock banks bear the brunt of this, with the loan-debt ratios of many in excess of 90%.”

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