(Bloomberg) — Traders stepped up wagers on a steeper European interest-rate curve, after a major Dutch pension fund signaled that it’s on track to shift to a new system next year.
According to strategists, a local media report on Pensioenfonds Zorg en Welzijn (PFZW)’s expectations for 2026 allayed some fears that the pension fund — one of the Netherlands’ largest — might delay its transition. Such an event is seen to pose a risk to one of the bond market’s favorite trades.
The fund is set to switch strategy in 2026, a PFZW spokesperson told Bloomberg News.
“There was some speculation of some funds potentially postponing their transition, but this is not the case for PFZW,” said Evelyne Gomez-Liechti, a strategist at Mizuho International Plc.
Investors have been positioning for steeper yield curves in the euro area in response to upcoming changes in the way the Dutch pension system, the region’s largest, invests and manages risk. But the complexity of that shift is forcing some funds to delay their transition. The pension fund for retail workers — with about €34 billion of assets — said last month it would postpone.
The risk is that delays by more large funds, to later in 2026 or even 2027, would exert flattening pressure on curves, burning investors who are positioned to profit from a steepening move.
The curve between 10 and 30-year swaps steepened as much as three basis points to 25 basis points earlier Wednesday, the highest in over a week. It had flattened 10 basis points from a peak of 29 basis points last month, partly on concern that some funds would delay the transition to the new regime.
European bond yield curves also steepened earlier Wednesday, before paring the move.
The Netherlands is embarking on a complex transition from so-called defined-benefit pensions to a new system involving defined contributions. A large number of funds are expected to transition at the start of 2026.
The switch could have major implications for European financial markets. Dutch pension funds are likely to adjust their approach to hedging interest-rate risk and have less need for long-dated bonds and swaps — contracts that pay a fixed stream of interest.
–With assistance from James Hirai and Sarah Jacob.
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