Forget Danish and Dutch Pensions, Japan Is Rattling Global Bond Market

Alex Harring of CNBC reports Danish pension fund to sell $100 million in Treasurys, citing ‘poor’ US government finances: 

Danish pension operator AkademikerPension said it is exiting U.S. Treasurys because of finance concerns as Denmark spars with President Donald Trump over his threats to take over Greenland.

Anders Schelde, AkademikerPension’s investing chief, said the decision was driven by what it sees as “poor [U.S.] government finances” amid America’s debt crisis. But it also comes as tensions escalate between the U.S. and Denmark after Trump’s latest threats to tariff European countries if Greenland, an arctic territory of Denmark, isn’t sold to the U.S.

“It is not directly related to the ongoing rift between the [U.S.] and Europe, but of course that didn’t make it more difficult to take the decision,” Schelde said in a statement to CNBC.

The fund currently has a position of around $100 million in U.S. Treasurys, an AkademikerPension spokesperson confirmed to CNBC. The academics-focused fund plans to have exited that holding by the end of the month.

Schelde chiefly cited the ballooning debt bill facing the U.S. after decades of government overspending. The U.S. recorded a budget shortfall of $1.78 trillion last year, down just over 2% from 2024′s fiscal year as Trump’s broad and steep tariffs took effect.

Moody’s Ratings cut the United States’ sovereign credit rating down to Aa1 from Aaa in May, citing the budget deficit and high borrowing costs associated with rolling over debt at lofty interest rates.

The U.S.′ finances made “us think that we need to make an effort to find an alternative way of conducting our liquidity and risk management,” Schelde said. “Now we have found such a way and we [are] executing on that.”

Denmark has grown increasingly hostile toward the U.S. as Trump has ratcheted up his calls for control of Greenland to be given to the U.S. Trump said over the weekend that he would institute tariffs on several European nations beginning Feb. 1 if the U.S. did not take control of Greenland and that those levies could rise to 25% on June 1.

European leaders have reportedly considered using counter-tariffs and other punitive economic measures as a result. Some investors have worried that European countries could dump their U.S. asset holdings in response to Trump’s new tariffs.

Greenland Prime Minister Jens-Frederik Nielsen said Monday that it would “not be pressured” and “stand firm on dialogue, on respect and on international law.”

Treasury yields in the U.S. and abroad surged Tuesday, a sign of investors feeling geopolitical turmoil rising. The U.S. dollar and stocks fell, and gold rose to new all-time highs in a session defined by the “sell America” trade.

Bridgewater Associates founder Ray Dalio told CNBC on Tuesday that sovereign funds could start to dump U.S. investments if they stop seeing the U.S. as a stable trading partner.

“On the other side of trade, deficits, and trade wars, there are capital and capital wars,” Dalio told CNBC’s “Squawk Box” at the World Economic Forum in Davos, Switzerland. “If you take the conflicts, you can’t ignore the possibility of the capital wars. In other words, maybe there’s not the same inclination to buy ... U.S. debt and so on.”

Reuters first reported the Danish pension fund’s Treasury exit. 

While this story made the rounds today given Trump's threats to take over Greenland, the truth is it has nothing to do with geopolitics but deteriorating US government finances.

Whatever, $100 million is peanuts in the Treasury market and I'm curious to see what liquid instruments they will replace this with, maybe European bonds.

But as the Economist recently reported, European government finances aren't any better which is why Europe’s biggest pension funds are dumping government bonds:

European governments are on a borrowing spree. During 2026 countries in the euro area will issue sovereign debt worth €1.4trn ($1.6trn, or 9% of GDP), reckons Amundi, an asset-management firm. Meanwhile, the European Central Bank plans to slim its holdings by €400bn. Net off the debt that is due to mature, and euro-area governments must find new buyers for nearly €900bn-worth of bonds—vastly more than in any previous year.

Unfortunately, some of their most deep-pocketed lenders are preparing to close their cheque books. Pension funds own roughly 10% of euro-zone countries’ sovereign bonds with maturities over ten years, of which the Dutch pension system—the EU’s largest, with assets of €1.9trn—accounts for two-thirds. Until recently, Dutch schemes had been keen buyers because government bonds’ all but guaranteed payouts helped them offer members “defined-benefit” (DB) pensions, meaning fixed retirement incomes. Now, owing to a reform of the Netherlands’ pension regulations, the DB schemes are on their way out. A significant source of demand for long-term European government bonds will soon disappear.

On January 1st, estimates Corine Reedijk of Aon, a risk adviser, schemes overseeing 35-40% of total Dutch pension assets moved to a “defined-contribution” (DC) model. This means they will no longer offer retirees (even legacy members) fixed incomes, but variable ones that depend on how their investment portfolios perform. The majority of the remaining schemes will transition from January 1st 2027, and the regulations require all that are open to new members to do so by 2028.

Dutch pension funds are therefore losing a powerful incentive to buy long-term government bonds. Unlike DB schemes, DC ones lack fixed liabilities stretching many years into the future, so the near-certain payouts such bonds promise are less valuable to them. Risky assets such as stocks look more attractive, offering a shot at superior returns and hence higher, if more volatile, retirement incomes.

In other words, lots of long-term European government bonds and interest-rate swaps (derivative contracts that offer similar payouts) will soon be up for sale. The Dutch central bank forecasts that pension schemes will reduce their holdings of those with maturities over 25 years by €100bn-150bn as they transition. This is a significant chunk of the €900bn-worth of such bonds outstanding.

Bob Homan of ING, a Dutch bank, thinks all European bonds will be affected, but mainly those with maturities over ten years issued by countries with the top “AAA” credit rating. (These include Germany, the Netherlands, Norway and Sweden.) Since bond yields move inversely to prices, sales will push up yields. Traders have probably already priced some of this in, thinks Mr Homan. But the pressure will continue for the next two years as more pension schemes transition, and the overall effect “is difficult to quantify”. The trouble, he says, is that “I don’t see any new demand appearing” for long-dated bonds.

Should bond yields rise further, the greater returns on offer would surely spur their own demand. They would also raise European governments’ long-term borrowing costs—and for some these are already at their highest since the euro-zone crisis of 2010-12, or higher (see chart above). The temptation for finance ministers will be to issue fewer bonds with long maturities and more short-dated ones, with lower interest rates. Yet short-dated bonds must be refinanced sooner, making governments more vulnerable to the risk of short-term interest rates moving higher than expected (owing to a surprise jump in inflation, say).

Another risk is that investors who are enticed by higher yields to buy bonds are likely to be flightier, resulting in more volatility. A DB pension fund that has earmarked a bond’s coupons and principal for future liabilities does not care if its price changes, since its payouts will stay the same. Such price-insensitive bondholders are rare and valuable to borrowers. The ECB is another big one and it, too, is shrinking its portfolio. Taking their place will be price-sensitive investors such as hedge funds, which will buy sovereign debt if returns look attractive, but dump it just as quickly if other assets start to look better. Those tasked with selling European government bonds have a busy year ahead.  

Eduard van Gelderen, PSP's former CIO shared this with me: "With the introduction of the new pension contract in the Netherlands, there is a move from DB to DC. However, in order to protect the members, a minimum return on the assets is guaranteed. The members will also get part over the returns in excess of the guaranteed returns. Whereas before the liabilities were hedged (LDI approach), now the assets will be hedged. This implies that the high demand for bonds and swaps in the old situation will drastically diminish in the new situation." 

Eduard should know since he served as CEO of the Dutch financial service provider APG Asset Management and Deputy CIO of ING Investment Management. 

I personally think the Dutch pension reforms are not a step in the right direction, not that the old LDI approach was perfect, it forced them to buy bonds during the euro crisis that had negative yields.

Lastly, while everyone is worried about Trump's Davos speech on Wednesday, global bond investors are fixated on Japan where bond yields are soaring to record highs, sending a jolt through the global bond market:

A jump in Japan's borrowing costs to all-time highs rippled through major bond markets on Tuesday, colliding with ​fresh anxiety over tensions related to Greenland and underscoring investors' sensitivity to rising fiscal pressures and heavy debt loads.

 

Japanese 10-year government bond ‌yields surged almost 19 basis points (bps) in two days, the sharpest rise since 2022, while 30-year yields posted their biggest daily jump since 2003 as investors braced for increased government spending.

 

Prime Minster Sanae Takaichi called a snap election on Monday and is running on a platform of stimulus.

 

"If there is a strong mandate following the election, that could open the door to more fiscal spending," said Seema Shah, chief global strategist at Principal Asset Management.

 

"It pulls a lot of global bond markets into a difficult story about debt and ‌you can see that in the rise in borrowing costs."

WORRIES OVER GREENLAND, THREAT OF MORE TARIFFS

Bond investors were also grappling ​with U.S. President Donald Trump's tariff threats against European allies over Greenland, which may raise expectations that Europe will have to ramp up defence spending further through even more bond issuance.

 

Talk of a 'Sell America' trade has also resurfaced, adding to selling pressure on Treasuries. The benchmark 10-year yield on Tuesday hit its highest since late ‍August of 4.313% .

 

Danish pension fund AkademikerPension said on Tuesday it was planning to sell its U.S. Treasury holdings by the end of the month, worth some $100 million.

 

U.S. 30-year Treasury yields jumped around 8 basis points to 4.91% , as U.S. markets reopened after Monday's holiday.

 

Over the last two trading day, they've risen by 13 bps, their biggest two-day increase since last May, when China-U.S. trade tensions ⁠flared.

 

The spread between U.S. two‑year and 30‑year yields, a barometer of investor unease about long‑term government finances, was on track for its biggest one‑day widening since ‍August, yet remained well below the 19‑bp jump recorded during last April's Liberation Day selloff.

 

"Japan fiscal pressures are concerning, but markets have become more sanguine about U.S. deficits," wrote Gennadiy ‌Goldberg, head ‌of U.S. rates strategy, at TD Securities in a research note.

 

"While Japanese worries could continue to pass through given global correlations, the U.S. Treasury is doing everything in their power to avoid over-issuing long-end debt by keeping issuance shorter-dated." 

 

 WHAT HAPPENED TO THE CALM?

 

The bonds selloff ends weeks of relative stability in big markets outside of Japan that have faced pressure over the past year from concern about high debt.

 

German 30-year bonds climbed as much as 6 bps to 3.53%, the highest in about two weeks, ⁠before coming down to 3.483%.

 

UK 30-year ⁠yields , which often rise or fall ​more than peers, were up around 6 bps at 5.22%, posting their largest daily increase since early January.

 

In Europe, tensions over Greenland only highlighted spending pressures, analysts said.

 

"It again means that Europe needs to do more on defence," said Barclays head of euro rates strategy Rohan Khanna.

 

"Which the market is going to say: look, it eventually means more issuance and more debt ‍supply and hence weaker long-end bonds."

 

He added that tariffs would hurt growth, which was supportive for shorter-dated bonds.

 

European bond markets were also sensitive to the JGB selloff because Japanese investors, big buyers of foreign bonds, might be tempted to move money into higher Japanese bond yields.

 

"The question is, where are those flows going to come from now? Are they going to come more from the ​U.S. or more from Europe? And given the current geopolitical landscape, that could amplify the spillover ‍to the U.S. a bit more," said ING senior rates strategist Michiel Tukker.

 

"You could argue it's safer to stay in German Bunds than U.S. Treasuries." 

 

One thing is for sure, higher Japanese bond yields means Japanese banks and insurance companies will not need to purchase as many Treasuries and European bonds.

Whatever the case, clearly worth keeping an eye on the Japanese bond market this year and while Vanguard ditched its bet on Japanese bonds ahead of the massive selloff, others see opportunity:

To be sure, not all fund managers have been scared off by the recent turmoil. Ranjiv Mann, a senior portfolio manager at Allianz Global Investors, said he was “actively discussing potential opportunities” in Japanese government bonds Tuesday, while as recently as last week, Pacific Investment Management Co.’s Andrew Balls saw opportunities in market volatility.

My take? Japanese bonds look awfully attractive at these levels.especially since the BOJ is signalling more rate hikes as the yen and politics fuel inflation risks.

Lastly, people need to remember that higher long bond yields are good for global pension funds because the value of future liabilities declines and as long as assets remain stable, their deficits shrink, surpluses grow.

That's why most North American corporate and public pension plans are in good financial shape lately, their deficits shrunk or surpluses grew.

Below, Bloomberg reports on Netflix’s cautious forecast, stocks tumbling, and a Danish pension fund exiting US Treausries.

Also, the selloff in Japan's bond market escalated quickly on Tuesday. Yields soared to records as investors gave a thumbs down to Prime Minister Sanae Takaichi’s election pitch to cut taxes on food. Jordan Rochester, Mizuho EMEA FICC strategy head, talks about what could come next for the bond markets.

Third, Krishna Guha, Evercore ISI, joins 'Closing Bell Overtime' to talk the day's market action.

Lastly, Bridgewater founder Ray Dalio joins 'Squawk Box' to discuss the latest market trends, state of the economy, 2026 world order, his thoughts on wealth taxes, and more.