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Dutch pension funds are set to put pressure on European government bond markets later this year as they start to sell around \u20ac125bn of long-dated bonds because of a substantial reform of the retirement sector.\u00a0<\/p>\n
Between 2025 and 2028 the \u20ac1.5tn Dutch pension industry is transitioning from a system in which final payouts to pensioners are guaranteed to a defined contribution framework, in which employers are only tied to the amount they put in. That will mean holding much less long-term sovereign debt to back their long-term promises and freeing up more funds to invest in higher-returning assets such as equities and credit.<\/p>\n
While a handful have already switched, Dutch funds managing close to half of the total assets that need to be transferred are set to convert in January next year, with managers expected to prepare portfolios in the run-up. Strategists at Dutch bank Rabobank expect \u20ac127bn of long-term sovereign debt will be sold over the course of the transition.<\/p>\n
The sale is the latest example of declining demand for long-term debt among pension funds which, coupled with record levels of sovereign borrowing, has helped push up bond yields around the world.<\/p>\n
\u201cEveryone is worried about the European long end\u201d of the bond market, said Pooja Kumra, a rates strategist at TD Securities, adding that sales may come \u201cvery quickly at the end of the year\u2009.\u2009.\u2009.\u2009but pre-emptive trades could be punitive if there are more delays\u201d.<\/p>\n
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PFZW, the second-largest pension fund in the Netherlands with \u20ac259bn of assets for healthcare and welfare workers, told the Financial Times it was on track to switch to the new system on January 1, 2026. ABP, the nation\u2019s largest, plans to transition the following year. <\/p>\n
Rising bond yields are piling pressure on policymakers as Europe increases its borrowing to fund its defence and energy ambitions, led by Germany\u2019s \u20ac1tn \u201cwhatever it takes\u201d spending plan. <\/p>\n
Long-dated Eurozone debt has been hit especially hard. Germany\u2019s 30-year yield has climbed from below zero during the Covid pandemic to more than 3 per cent, close to its highest levels since the Eurozone debt crisis. The additional interest rate paid on France\u2019s 30-year debt, compared with its two-year equivalent, has surged from zero two years ago to more than 2 percentage points.<\/p>\n
Dutch pension funds, which are by far the largest in the Eurozone, have used interest rates swaps and government bonds across different time horizons, even over 50 years or more, to match the period over which they must make payouts to their youngest members.\u00a0<\/p>\n
But as funds move to a system where they pay out based on returns, they are set to move towards riskier assets such as equities and credit, which they expect to generate higher returns for their members over the long term.\u00a0<\/p>\n
\u201cThere will be a shift away from 50, 40 and 30-year bonds,\u201d said Michiel Tukker, a European rates strategist at Dutch bank ING. \u201cNow the question is\u2009.\u2009.\u2009.\u2009who will be the buyer?\u201d<\/p>\n