The 10s30s curve has stabilised to around 25bp over the past month, but with the Dutch pension fund reforms on our doorstep, we doubt that stability can hold. The Dutch central bank (DNB) published a piece that highlights the risks to markets given the significant flows anticipated. According to DNB, market analysts anticipate funds will reduce their government bond and swap holdings with maturities of more than 25 years by €100bn to €150bn. Without further specification, DNB suggests that these estimates correspond to approximately the average flows in swap markets for a regular month.
Estimating the exact amount and timing remains a challenge and depends on the assets and liabilities as of the transition date. In our view, this means that the actual market impact in January 2026 could go either way – even a flattening of the 10s30s due to over-positioning by other financial players cannot be dismissed. What we do expect, however, is to see increased volatility. Whilst implied volatility measures of 30Y swaptions have fallen over the past week, they remain elevated compared to those of shorter maturities.
At the same time, DNB thinks the risks are well managed, mitigating the chance of seeing market stress around the transition dates. From a regulatory perspective, funds are given a year to adjust hedges and other financial players should be well-prepared to absorb the anticipated flows. We think markets will be pushed to their limit as funds will have a first-mover advantage by trading before longer-dated rates rise against them.
From a structural view, we think the steepening from the back end could continue. Both governments and the European Central Bank continue to add to the supply of bonds that need to be absorbed by the market, whilst the demand from Dutch pension funds will not return. Having said that, we also don’t think 30Y yields will rise uncontrollably, because, with sufficient term premium and swap spreads, Dutch pension funds will also see value in holding these bonds.