Investors are circling back to a curve steepener tied to the revamp of the Dutch pension sector, a trade that took off last year. The idea was that as funds adjusted hedges and reduced exposure to longer-dated European sovereign debt, longer maturities on the swap curve would climb versus shorter tenors.
That script did not play out earlier this year. Crowded positioning blunted the move, and the US-Iran war sent energy costs surging, which pulled shorter rates higher. The result was a tighter spread and even an inversion, with long-dated swap rates slipping below shorter maturities.
With a little more than a year of the transition still ahead and market pricing for European Central Bank hikes looking stretched, BNP Paribas rates strategist Steven Montgomery says activity is reviving. "I have been asked a lot more questions in the last month than the preceding five months about Dutch pensions," said Montgomery, who expects the swaps curve to tilt steeper into year-end. He also noted the trade is less crowded now: at the long end, speculative participation is roughly one fifth of its peak. "The consensus trades are a lot less consensus," he said.
Dutch central bank figures show €589 billion had been converted by the end of June, with €1.131 trillion left to transition by the Jan. 1, 2028 deadline. A rule change that allowed more time for hedge adjustments, plus signals from some funds that they would keep more hedges than expected, helped sap steepening pressure. After climbing through much of last year and topping out at 34 basis points in December, the 10s30s spread is now around minus 9 basis points.
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The 2026 backdrop was not what traders anticipated, with oil and ECB policy expectations setting the tone. That energy-price uncertainty made many wary of putting the steepener back on. Adam Kurpiel, who runs rates strategy at Societe Generale SA, argues policy will overshadow pensions: "The ECB story will matter more than the pension fund story," adding, "Peak hawkish ECB pricing still lies ahead." He sees the 10s30s curve reaching minus 20 basis points by the end of the year.
Montgomery takes the other side. He thinks the market has overestimated rate-hike risk and that an easier-than-priced policy path would pull down shorter rates, which would support a steepener. As he put it: "Given we have a more dovish view on the ECB than the market, and given we think that the Dutch pension transition is probably slightly underappreciated this year, we would have a steepening bias into and across year end."
What changed is not the narrative, but the setup. The transition still has a sizable chunk to run, the trade is far less crowded than it was, and the curve is inverted again. If ECB expectations ebb and energy jitters cool, the ingredients for a steeper curve are back on the table. That mix influences everything from long-maturity borrowing costs to how European bond funds behave, which can ripple into the returns you see in diversified portfolios.
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