Low yields.

[Snoopy]

Look at the 'comparative bond' 'market interest' charts that I have identified (ABB110, AIA240, ARG020, CEN060, CCH030 - refer to post 30). Check the timelines from the start of February 2023 to August 2023. All are rising steadily (i.e. the underlying capital bond values are falling steadily). Yet, over the same period NZB, charted on a 'whole of fund valuation basis', is largely flat. This could indicate that as a rule (except for the few bonds that were actually sold), the constituent bonds that make up NZB are not being 'marked to market'. How could NZB get away with this? Well, the NZB fund has an indefinite life. So as long as the constituent bonds were held to maturity (i.e. not sold on the way), that means the NZB fund would eventually get its capital back, - even in a falling bond market. And that, in turn, means the need to 'mark to market' as part of a reporting procedure might disappear. Note that I am not saying this definitely is happening. I am merely raising the 'not being marked to market' idea as a possibility.

As an indicator of the NZB pull back we might have expected, between February 2023 and August 2023, -the pull back that didn't happen- we can gauge what I would have expected to happen, by looking at the ABB110 bond over that same 'time frame of concern'. The underlying interest rate of our reference bond ABB110, rose from 4.9% to 5.8% over our time period of interest. This represents a capital reduction of (1-(4.9%/5.8%))= 15.5% over the February 2023 to August 2023 period.

What is it that has allowed the NZB price to hold up in the wake of such bond market turmoil? I can think of three possible mechanisms, the first leading on from what I have just discussed.

This first suggestion, (I have already made) is that NZB does not 'mark to market' their constituent bonds (except for the subset of those bonds sold before maturity). This is a conjecture of mine (even if it doesn't seem likely). It is one possible reason why the change in value of NZB -seemingly- has not followed the direction of its constituent bonds.

SNOOPY