The yield curve on European government bonds is set to flatten or even invert from March this year as new regulations force the region's second-largest group of pension funds to change the profile of their assets.
Under new solvency regulations, Dutch pension funds will be required to match their assets and liabilities better after the poor performance of equities over recent years. That means they will become keen buyers of long-dated government bonds with maturities of between 10 and 30 years.
ABN Amro says the impact on the yield curve will make it even harder for pension funds to match liabilities. It also says that issuers and investors are often unaware of the scale of this issue and of the level of impact it might have.
The new Dutch pension solvency requirements will be implemented in the first half of this year, and the draft version will be published in March or April. But yield curves may start changing sooner than that, as pension funds seek to move early and get better prices for long-dated bonds.
The impact of this expected mass migration will be significant because Dutch pension funds are large.