OneAnswer KiwiSaver Scheme International Fixed Interest Fund

• US government bonds finished the quarter higher, after the US Federal Reserve (the Fed) delivered a larger-than-expected 50 basis point cut, kicking off its interest rate easing cycle. The Fed said it had gained “greater confidence that inflation is moving sustainably toward 2%”. It added it was becoming more attentive to the labour market, which was showing some small signs of softening. The Fed’s increasing focus on the labour market came after a couple of weaker-than-expected employment reports and a jump in unemployment to 4.3% in July, its highest level in nearly three years.
• Over the quarter, the yield on the US 10-year government bond fell 62 basis points to 3.78%. When bond yields fall, their prices go up.
• In Europe, bonds also rose after the European Central Bank followed up its June interest rate cut with a second 25-basis-point cut. Meanwhile, UK bonds also delivered gains, but returns were behind their global peers amid concerns about stubbornly high services inflation.
• Japanese bonds recorded gains, but were some of the weaker performing after the Bank of Japan raised interest rates for only the second time in 17 years. After the decision, Japan’s 10-year government bond yield rose to its highest level in more than a decade. However, in early August, financial markets saw a bout of volatility after investors unwound ‘carry trade’ positions. A carry trade is when investors borrow in a low-yielding currency and invest in a higher-yielding market. The volatility caused by this saw a rush to safe haven assets, which included Japanese bonds.
• The fund runs an overweight position to US bonds through its GDP-weighted strategy, which was particularly beneficial to performance given the strong performance of this region’s bond market. Also adding to relative performance, was the fund’s underweight to weaker-performing Japanese bonds.

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.