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 bond markets faced a challenging quarter, with government, corporate and investment-grade bonds all delivering negative returns as bond yields moved higher. Persistent inflation concerns and ongoing tensions in the Middle East kept energy prices elevated and raised the risk that inflation could remain above central bank targets for longer. When bond yields rise, bond prices typically fall.

International bond markets were similarly affected, with investors reassessing the outlook for monetary policy. US government bond yields increased as markets became concerned that inflation may prove more persistent than expected, leading investors to expect interest rates to stay higher for longer. Longer-dated bond yields also came under pressure from concerns about increasing government debt levels and rising debt servicing costs.

New Zealand bonds broadly followed these global trends. Inflation remained above the Reserve Bank of New Zealand's target range, prompting the central bank to raise the Official Cash Rate twice during the quarter to 2.75% and signal that further increases may be required. Domestic economic data presented a mixed picture, with business confidence remaining resilient despite higher borrowing costs. However, labour market conditions softened, with the unemployment rate rising to its highest level in more than a decade.

Against this backdrop, the yield on the New Zealand 10-year government bond rose 68 basis points to 5.04% over the quarter, weighing on returns across the fixed interest market. Australian bond markets also declined as inflation remained well above the Reserve Bank of Australia's target range, prompting the Reserve Bank of Australia to raise its cash rate further.

Fund activity focused on opportunities in the primary market and ongoing portfolio rebalancing. The fund participated in several new bond issues from high-quality issuers, including ANZ, Westpac New Zealand, Macquarie Group and the Export-Import Bank of Korea, providing opportunities to add exposure at attractive yield levels. The fund also participated in a consortium financing for Precinct Properties and increased holdings of New Zealand inflation-linked government bonds.

Portfolio activity included ongoing rebalancing across government, bank and corporate bond holdings, while maintaining broad exposure to high-quality issuers across the New Zealand fixed interest market. While higher bond yields weighed on returns during the quarter, they also improved the level of income available to investors and the long-term return potential of the asset class.