OneAnswer KiwiSaver Scheme International Fixed Interest Fund

• Global bond markets were weak, despite most central banks delivering rate cuts. Ordinarily, lower interest rates are good for bond investors. 
• US bonds underperformed most other regions. The US Federal Reserve (the Fed) lowered interest rate twice – by 25 basis points in November and December. However, following its most recent meeting, it said that slower progress on inflation, strong economic growth and relatively stable unemployment translated to a slower pace of rate cuts ahead. It also predicted it would lower interest rates twice in 2025, down from its previous guidance of four cuts.
• This put US bond markets on the back foot, as it means interest rates are likely to fall more slowly than previously expected. As a result, the yield on the US 10-year government bond rose 79 basis points, to 4.57%. When bond yields rise, their prices fall.
• Bond markets elsewhere also fell in value, albeit less than in the US. UK bonds lost ground, as a pick-up in inflation prompted the Bank of England (BoE) to leave interest rates on hold in December. Australian bonds also declined, as the Reserve Bank of Australia (RBA) is yet to deliver rate cuts, given the country’s robust employment market and slow progress with getting inflation down to target level.
• Japanese bonds saw modest declines, despite the Bank of Japan opting to keep interest rates on hold throughout the quarter, following its moves to raise interest rates earlier in the year.
• Meanwhile, European bonds delivered the smallest falls, given the bleak economic backdrop and further falls in inflation there, which saw the European Central Bank (ECB) deliver 50 basis points of cuts during the quarter.
• The fund holds an overweight position to US bonds through its GDP-weighted strategy, and this was detrimental to its relative performance over the quarter given the region’s underperformance. The fund was also underweight to Japanese bonds, which experienced more moderate declines than the wider global bond market.

The fund invests mainly in international fixed interest assets. Investments may include:

• Fixed interest assets issued by governments or international companies
• Cash and cash equivalents.

This chart shows the mix of assets that the fund generally intends to invest in – 100% fixed interest.

See the fund's actual investment mix on page 3 of the fund update.