Dutch pension funds have been reducing their holdings of US treasuries and other dollar-denominated bonds, driven by increased dollar volatility and a declining role for US government debt in liability-driven investment (LDI) strategies.
The most significant seller has been €538bn ABP, the Netherlands’ largest pension fund.
At the end of March 2025, ABP held €29bn in US treasuries. By the end of June this had fallen to €24bn, and by the end of September holdings of US government bonds had dropped to €18.6bn, equivalent to 3.6% of total assets.
The reduction cannot be attributed to market movements. The US 10-year yield was slightly lower at the end of September than in March, implying higher treasury prices over the period.
ABP also fully hedges currency risk on its US government bond portfolio, meaning the weaker dollar did not directly affect valuations.
Shift to Europe
According to an investment overview on ABP’s website, US government bonds have been replaced by Dutch, German and Belgian government debt.
By the end of September 2025, the civil service pension fund had €99bn invested in European government bonds, more than €7bn higher than at the end of June.
Despite the reduction, ABP still holds more US treasuries than all other Dutch pension funds combined.
Most schemes avoid the asset class altogether. Healthcare pension fund PFZW invests less than €20m in treasuries, while construction sector scheme Bpf Bouw sold its US treasury holdings in 2023 after concluding, following an LDI study, that treasuries were no longer suitable for hedging liabilities and interest rate risk.
Dollar volatility
An ABP spokesperson declined to comment on the reasons behind the reduced exposure.
However, dollar bonds have become less effective as interest rate hedging instruments, says Sandor Steverink of consultancy WTW.
“Interest rate policy in the US may diverge more in the future due to concerns about the independence of central bank policy in the US, where it has so far been reasonably in line with the ECB [European Central Bank],” Steverink said.
He also points to a marked increase in dollar volatility. “The chance that the dollar will move sharply against the euro has increased, and the effects of that can be seen in the options market. This increases the liquidity requirement for currency hedging. You can then no longer use that liquidity for interest rate hedging.”
Pension funds that have yet to transition to the new defined contribution-based pension system, including ABP, need additional liquidity to expand interest-rate hedges. This may be encouraging funds to cut exposure to dollar bonds.
Data from Dutch regulator DNB show that pension funds have been reducing their overall exposure to dollar assets, even as US equity markets have rallied.
At the end of September last year, Dutch pension funds held €551bn in dollar-denominated investments, down from €648bn at the end of 2021. Over the same period, euro-denominated investments increased from €752bn to €902bn.
The shift is likely linked to a lower allocation to dollar bonds, while rising US equity markets boosted the value of stock holdings.
ESG considerations
Political and regulatory factors may also be influencing allocation decisions, says Mathias Neidert of consultancy bfinance.
“Some European pension fund clients have decided to invest less in the US and more in Europe because of concerns around their ESG policies. They are afraid that American companies will have to stop providing certain ESG data.”
His colleague Toby Goodworth adds that at least one pension fund client has excluded US government bonds because the US has left the Paris Agreement and withdrawn from several other international treaties.
This article was first published on Pensioen Pro, IPE’s Dutch sister publication.
