NETHERLANDS – The Dutch central bank and pensions regulator has said that pension fund demand for long-term bonds has put pressure on interest rates.

“The introduction of the Financial Assessment Framework (Financieel Toetsingskader/FTK) prompted many pension funds to scrutinise their existing investment policies,” De Nederlansche Bank said in a quarterly report.

“For the moment, the resulting higher demand for long-term bonds has put downward pressure on long-term interest rates in the European financial markets.”

It added: “The extent of the Dutch pension funds’ influence is difficult to judge, because institutions in other countries often made adjustments along similar lines. Moreover, governments have reacted by issuing more long-term bonds.”

It concluded that the schemes’ “duration gap” could be countered by long-term bonds or derivatives such as swaps and options.

It said: “Irrespective of the choice for one of the latter three products, long-term interest rates will go down due to hedging activities of the seller of options or swaps.

“The current lower steepness of the long-end of the yield curve since the beginning of this year has probably been caused by the impact of (speculative behaviour) acquisitions related to the changes in supervision regimes and the results of new accounting rules.”