***Bas van Zanden, Senior Pension Analyst at...>

EGBS: ***Bas van Zanden, Senior Pension Analyst at Rabobank says that the

discount curve, known as the ultimate forward rate (UFR) for valuing Dutch

pension fund liabilities is set at 2.7% but should decrease further "even to 2%

in 2021 if swap rates remain at current levels". Unfortunately, the UFR cannot

be hedged in the market.

- van Zanden writes that Dutch pension funds are clearly suffering from low

rates and "cuts in pensions cannot be ruled out, as coverage ratios of pension

funds could easily drop further."

- The UFR of 2.7%, the discount curve differs from the swap curve by

approximately 50bp at 50Y. "This means a simple long swap hedge over time will

not provide enough return to match the increase in liabilities. This extra

return will have to be compensated with other assets offering higher yield". 

- His analysis concludes that "Large (unlikely) interest rate hikes will result

in an inversion of the curve"