OneAnswer KiwiSaver Scheme New Zealand Fixed Interest Fund

The New Zealand Fixed Interest Fund invests mainly in New Zealand fixed interest assets. Investments may include fixed interest assets in New Zealand dollars, or issued by New Zealand located or incorporated entities and hedged back to New Zealand dollars, and cash and cash equivalents.

The New Zealand Fixed Interest Fund aims to achieve a return (after the fund charge and before tax) that over the long-term is broadly in line with the relevant market index.

Minimum suggested investment timeframe is 5 or more years. The minimum suggested timeframe indicates how long to stay invested to manage short-term ups and downs and give your investment time to recover from any drops in value.

See Past updates for our funds.

New Zealand bonds delivered positive returns over the quarter, with both government bonds and investment-grade corporate bonds benefiting from a decline in yields. After a volatile start to the period, easing inflation concerns and improving market sentiment provided support for fixed interest markets. Local bond markets were influenced by both offshore developments and domestic economic conditions.

International bond markets initially came under pressure as oil prices surged and investors worried that inflation could remain elevated for longer. This prompted markets to reassess the outlook for interest rates and pushed bond yields higher across many major economies. However, conditions improved as tensions in the Middle East eased and oil prices retreated sharply, helping to reduce inflation concerns and supporting a recovery in bond markets.

New Zealand bonds broadly followed these global trends. While the Reserve Bank of New Zealand maintained the Official Cash Rate unchanged at 2.25% throughout the quarter, evidence that domestic pricing pressures remained contained helped improve investor confidence. Economic growth remained subdued and consumer confidence was weak, although business confidence improved noticeably towards quarter end.

Against this backdrop, bond markets performed well. The yield on the New Zealand 10-year government bond fell by 36 basis points over the quarter to 4.36%, supporting positive returns across the asset class. When bond yields fall, bond prices rise. Australian bond markets also generated positive returns, although inflation remained a concern and prompted the Reserve Bank of Australia to raise interest rates during the quarter.

Fund activity focused on taking advantage of opportunities across the New Zealand fixed interest market, particularly in new bond issuance. Market volatility early in the quarter provided opportunities to add high-quality exposures at attractive yield levels.

A key theme during the period was the return of supranational issuers to the New Zealand market after being largely absent for several years. These highly rated issuers provided an attractive alternative to government bonds while maintaining a strong credit profile. Towards the end of the quarter, the fund also added New Zealand inflation-linked government bonds, taking advantage of attractive real yields relative to conventional government bonds. Bond sales during the period were primarily undertaken to fund new investments and manage overall portfolio positioning.