Around €550bn worth of Dutch pension fund assets will transfer to the new system in January 2026, marking the start of a "significant unwind" of longer-dated bonds and swaps, according to ING Netherlands.

With another €900bn in assets planned to transition in 2027, ING Netherlands said it foresees a broader structural fall in the demand for longer maturities in euro fixed income, meaning that 30-year rates should continue to experience upward pressure for the foreseeable future.

The firm said it expects the largest unwinds to occur in the fixed-income maturities of 30 years and beyond, while maturities shorter than 20 years could see increased demand from funds.

ING Netherlands explained that the new system provides flexibility to hedge by age cohort, suggesting that funds will reduce hedges for their younger participants and may increase hedging ratios for older participants.

In addition to these changes in duration demand, ING Netherlands estimates a reduction of around €100bn in European government bonds after the switch to the new system.

These bonds currently provide attractive duration and have a zero per cent risk weight for capitalisation purposes. The new regulatory framework doesn’t have these capital requirements, resulting in a reduced need for very long tenors, ING stated.

Instead, ING Netherlands believes that credits, including sovereigns, supranationals and agencies, could see a net benefit from the reforms.

However, it acknowledged that the industry has learnt that delays are common, often caused by regulatory hurdles, IT issues, or administrative challenges, with some postponements announced as late as two weeks before the intended transition date.

In particular, it said it sees a non-negligible probability that a material amount of the €900bn in assets to transition by 2027 will be delayed to 2028.

ING Netherlands said markets are watching the progress of the largest funds closely. ABP stands out, ING noted, because it is the biggest Dutch pension fund, with more than €500bn in assets and representing about a third of the system.

According to ING, recent headlines have already shown how sensitive the market is to transition updates. When information on PFZW’s progress appeared, the 10–30 year spread moved almost immediately.

ING added that, in October 2025, after PFZW signalled confidence about completing its transition by January 2026, the curve steepened by around two basis points.

Another example of this was in May 2025, when an important approval related to the reforms was passed through parliament, which steepened the 10-year/30-year curve by around five basis points that day.

However, ING Netherlands stressed that these jumps are driven by speculative flows and that a significant portion of the actual unwinds by funds should still occur in the years to come.

Since early 2025, the 10-year/30-year curve has only steepened by five basis points more than the US curve, suggesting most of the market moves so far have been macro-driven.

ING Netherlands said the volatility of these headlines gives a sense of the material market impact of the transition.

Given this, for 2026, the corporation said it expects more long-end curve volatility around pension-related headlines, suggesting that particular attention should be paid to ABP mentions.

The corporation noted that estimating the precise flows from funds is “incredibly difficult”, meaning it expects increased volatility around transition dates.
It explained that flows will depend on market conditions, such as equity performance and each fund's transition strategies.

In particular, ING Netherlands expects increased volatility in January as market participants try to gauge the flows being realised and that from swaption pricing, it can already see that, especially for 30-year tenors, the implied volatilities are relatively elevated.

However, if January flows disappoint, there could be an initial flattening in the 10-year/30-year curve.

Despite this, ING Netherlands believes that the overall direction is heading toward steeper curves, as the broader supply picture also argues in favour of a higher term premium.

This is a global theme, with the US, UK and Japan also bringing spillovers to the euro curve in the form of a higher term risk premium.

Given this, the corporation thinks 30-year bond yields are still not close to reaching their new highs.

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