(Yicai Global) July 26 -- China’s structured deposits, which are deposits in which financial derivatives are embedded, slumped to their lowest point this year in June, as yield rates slide and the cost of borrowing drops, tempting investors to put their money elsewhere.

China’s structured deposits tumbled 7.3 percent in June from the beginning of the year to CNY5.5 trillion (USD823.4 billion), according to the latest data from the People’s Bank of China.

The reduction in structured deposits is in line with growing support for the real economy as financing costs fall, Zhang Licong, chief analyst in asset management and government bond interest rate at CITIC Securities' research department, told Yicai Global.

And as banks bring down lending costs, the rate of return has fallen. The median yield rate is expected to tumble 2 basis points in June from the previous month to an average 2.97 percent while the maximum yield rate could dip 1 bip month on month to an average 3.58 percent, according to statistics from Rong360 Digital Technology Institute.

The decline in the yield rate is mainly related to financial market volatility, Zhang said. Structured deposits are often tied to financial derivatives that are linked to fluctuations in exchange rates, stock indexes, interest rates and commodities prices, all of which had big swings this year.

However, the fall in yields is likely to slow in the short term as volatility in the equity market increased in July, Zhang said. This might make investors inject more funds in structured deposits, as they are relatively low risk and are expected to have better returns than ordinary deposits considering their links to other assets.

But the reform of the benchmark deposit rate, the liberalization of interest rates, the increased willingness of people to deposit, as well as the overall downward price of deposits will also put pressure on the rate of return, he added.

Editor: Kim Taylor