Dutch pension funds are expected to unwind interest-rate swap trades as they move to a new investing model, leaving banks exposed to a “basis trap,” according to Societe Generale SA.
The funds are likely to terminate a “toxic vintage” of unprofitable derivative contracts linked to the Euribor benchmark that were initiated between 2019 to 2021 when borrowing costs were close to zero, according to Mathias Kpade, a rates strategist at the French bank.