RATES Weekly : US shutdown and Dutch pension funds

EUR rates:Recap of the week:  Bull market for € and $ rates, but a different trajectory for the curve, which is steepening in the US and flattening in the eurozone. ECB considers well positioned with a DFR at 2%, in a context of a rebound in the cycle in the eurozone. Nevertheless, the prospect of an undershoot of the inflation target remains firmly on the radar of investors. The long end of the euro curve has also attracted renewed attention. With Bouw and PFZW and now PMT, three of the largest Dutch pension funds (approximately €400 billion in AuM) are in the running to transition to the new pension regime starting in 2026.Insights of the week:  Rates volatility, global compression but diverging drivers.Tactical view: The belly of the curve continues to offer better carry. We maintain that the structural drivers for a steeper EUR 10s30s remain in place.  We continue to forecast the 10Y OAT-Bund spread to reach 85bp by Q4.US rates:We remain neutral directionally with 2025 cuts well priced and little on the horizon to provide a catalyst one way or another.  We remain biased to curve steepeners but similarly recognize the curve may be in a broader range until in the very least the government reopens, and new information is received.  We are starting to look towards picking up inflation hedges via 5yr ZC inflation swaps if they continue to cheapen – we eye 2.50%-2.55% as potential entry.