The move by 24 Dutch pension funds, including PFZW and PMT, to the new defined contribution (DC) pension system has so far failed to trigger significant disruption in long-dated interest rate swap markets, according to consultancy Sprenkels.
However, the risk of market turbulence has not disappeared. Sprenkels has warned that volatility could still emerge if multiple funds decide to reduce their interest rate hedges simultaneously in the coming weeks.
Since early December, the consultancy has tracked weekly developments in the 20- and 50-year swap market — key maturities for pension funds that transitioned to the new DC system on 1 January but still retain higher-than-needed interest rate hedges.
Under the new regime, losses on swap portfolios caused by rising interest rates would be borne directly by members.
Marit Kosmeijer, consultant at Sprenkels, said swap rates for 20- and 50-year Dutch government bonds have shown little movement in recent weeks, standing at 3.33% and 3.07%, respectively, at the start of this week.
“There has been a limited increase since the beginning of December. Nevertheless, it may well be that Dutch pension funds started reducing their interest rate hedge around the turn of the year. It is still too early to see this reflected in a change in interest rates, because markets are apparently able to absorb this well for the time being. There seems to be sufficient liquidity so far,” Kosmeijer concluded.
Hedge funds step in
While Dutch pension funds are dominant players in the long-dated swap market, they are not alone. During 2025, hedge funds built positions to profit from the expected large-scale unwinding of interest rate swaps by the Dutch pension sector.
Pension funds now require payer swaps – accumulated by hedge funds – to offset receiver swaps entered into in the past.
According to Kosmeijer, speculative strategies have contributed to the steady rise in the 50-year swap rate during 2025, which now sits around one percentage point higher than a year ago.
“The spread has certainly been higher in recent days than in the past six months,” she said.
“It even almost doubled last week for maturities of twenty and fifty years. Yet this is not worrying. Around the turn of the year, with swap trading diminishing, the spread always rises. Our data do not go back so far that we can see whether the bid-ask spread is also significantly higher in recent days than it was at this time a year ago,” she continued.
Interest rate hedging also extends beyond swaps. Yields on 30-year German and Dutch government bonds have continued to rise in recent days, although Kosmeijer cautioned against attributing this directly to pension fund activity.
“There are many more players active in the bond market for shorter and medium maturities than in the long swap market for long maturities, and macroeconomic developments also have a major impact on interest rate changes,” she said.
This article was first published on Pensioen Pro, IPE’s Dutch sister publication. It was translated and adapted for IPE by Tjibbe Hoekstra.
