OneAnswer KiwiSaver Scheme International Fixed Interest Fund

Global bond markets began the quarter under pressure as oil prices rose sharply, fuelling concerns that inflation could remain elevated, meaning central banks may need to keep interest rates higher for longer. As a result, government bond yields in several major markets climbed to multi-year highs.

Market sentiment improved later following a ceasefire agreement between the US and Iran and the signing of a 14-point memorandum of understanding. These developments contributed to a sharp decline in oil prices, prompting bond yields to retreat back from their peak levels.

Despite the pullback in yields, several central banks took action. The European Central Bank increased its key policy rate by 25 basis points, while the Reserve Bank of Australia also raised its cash rate by 25 basis points, marking its third increase of the year. Meanwhile, the US Federal Reserve left rates unchanged but adopted a more hawkish tone by removing its easing bias.

By quarter-end, most major bond markets had delivered positive returns. Australia and the UK were the strongest performers, while Japan remained the notable laggard.

The fund invests in three distinct fixed interest strategies, managed by two external fund managers: Northern Trust Asset Management and PIMCO. This multi-manager and strategy approach enhances diversification and provides access to a broad spectrum of fixed income securities across global markets. All three strategies delivered positive returns during the quarter, despite the volatility.

The PIMCO-managed International Aggregate Bond Fund was the strongest performer. The strategy benefited from its diversified approach across government and corporate bond markets, with falling yields later in the quarter and generally supportive credit market conditions helping to drive returns. In particular, positions in European, UK and US bond markets contributed positively as inflation concerns eased, while its exposure to high-quality credit and asset-backed sectors also supported returns.

The ANZ Wholesale International Credit Fund also delivered a strong positive return. Corporate bond markets remained resilient throughout the quarter, supported by stable credit spreads and improving investor confidence as geopolitical tensions eased and inflation concerns moderated. The strategy's diversified exposure to investment-grade corporate bonds helped it outperform government bond markets over the period.

The ANZ Wholesale International Sovereign Fund, which passively tracks high-quality government bonds, also generated a positive return. While government bond yields declined later in the quarter, gains were more modest than those achieved by credit-oriented strategies. Nevertheless, it continued to provide high-quality defensive exposure across major global bond markets.