OneAnswer KiwiSaver Scheme International Fixed Interest Fund

• Global bond markets experienced higher levels of volatility due to policy uncertainties stemming from President Trump’s trade policies, but still finished the quarter higher, benefitting from the same concerns over economic growth that put downward pressure on share markets.
• Proposed tariffs and fiscal policies increased inflation expectations, causing initial pressure on US bonds. That’s because it raised the likelihood of interest rates being held at a higher level for longer. However, bonds later found support as share markets fell on the back of AI-related concerns and broader worries about the potential impact tariffs could have on economic growth, which would potentially support a lower interest rate environment. The yield on the US 10-year government bond, which had reached 4.8% in January, ended the quarter lower and fell 36 basis points, to 4.21%. When bond yields go down, their prices go up.
• Elsewhere, bond markets were more mixed. In Europe, German government bond yields rose sharply, reflecting concerns about increased defence spending within the region being funded through an increase in bond issuance. UK bonds faced similar concerns, with yields on the equivalent government bond up 11 basis points. Japanese government bonds also saw a sustained rise in yields, given growing expectations the Bank of Japan would increase interest rates due to a pick-up in local inflationary pressures.
• Central bank policy remained in focus throughout the quarter, as the US Federal Reserve kept its key interest rate unchanged. Its decision was influenced by mixed economic data, including elevated US inflation and concerns about economic growth. Other central banks, including those in Canada, Sweden, the UK and the eurozone continued to cut interest rates.
• The fund had a good quarter, thanks to positive returns from both government and corporate bonds. Corporate bonds continued to perform better than government bonds because the US economy grew steadily, and lower interest rates made it cheaper for companies to borrow money. The fund’s focus on longer-term bonds and more corporate bonds also helped boost its performance.
• Government bonds also made gains, but the results were mixed due to market ups and downs and worries about inflation from new trade policies. The strategy’s focus on US bonds paid off, but Japan’s interest rate hike affected returns from that region.
• Managed by Northern Trust Asset Management and PIMCO, overall, the fund’s diverse mix of government and corporate bonds provided a balanced and positive outcome for the quarter.

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.