CZK: Koruna Stays On Back Foot, FinMin Forecasts Under Scrutiny
EUR/CZK has largely looked through the latest round of Finance Ministry economic forecasts and last deals +0.034 at 24.517 after hitting fresh two-week highs earlier in the session. A break above the 50-DMA, which kicks in at 24.627, would support the bullish case. On the flip side, bears keep an eye on Aug 11 low of 24.389, followed by Nov 29, 2023 low of 24.203.
- The Finance Ministry revised the 2025 growth outlook marginally higher but trimmed the 2026 forecast. It also lowered its fiscal-deficit projection to 1.9% of GDP from 2.2% prior, expecting more revenue from corporate taxes. Finance Minister Stanjura said that the fiscal gap will probably stay around 1.9% of GDP next year.
- As mentioned earlier, this round of forecasts will underpin the 2026 state budget.
- CZGB curve runs steeper, with 2s outperforming as we type. The PX Index has inched higher.
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BONDS: 10-year Gilt/Bund Spread Tests 200bps Following UK Fiscal Data
The 10-year Gilt/Bund spread has widened 1.5bps today, piercing the 200bp handle for the first time in a month. This morning’s higher-than-expected UK PSNB print is driving the relative underperformance for Gilts.
- Broader core FI yields are facing some upward pressure today, following yesterday’s notable curve bull flattening. Gilt yields are 1.5-3bps higher, while German yields are up 0.5-1.5bps. Both curves have bear steepened on the session.
- Gilt futures are -17 ticks at 91.61, off session lows of 91.46. A bear cycle in Gilt futures remains in play, with initial resistance the 20-day EMA at 91.97. Bund futures are -11 at 130.34, still above the 50-day EMA which was pierced yesterday. A clear break of the EMA would undermine the recent bear theme and highlight a possible reversal.
- 10-year EGB spreads to Bunds are up to 1bp wider, with European equity futures down 0.6% today.
- BOE Governor Bailey is currently speaking to the Treasury Select Committee on the latest Financial Stability Report. Any references to UK inflation or the jobs market will be watched carefully.
- The GBP20.7bln UK PSNB figure for June was GBP6.6bln more than the year prior. The OBR projected a reading of GBP17.1bln, with BBG consensus standing at GBP17.5bln.
- In the Eurozone, the ECB’s Q2 Bank Lending Survey felt supportive of market expectations for one more 25bp cut this cycle - but does not signal a need to rush back into sequential rate cuts following a likely pause at Thursday's decision.
- This morning’s 1.125% Sep-35 Gilt Linker auction was strong (as expected), while German Green Bund supply was digested smoothly.
- Broader focus remains on Thursday’s flash PMIs and the ECB decision.
GERMAN AUCTION RESULTS: Green Bund Results
| 2.30% Feb-33 Green Bund | 2.50% Feb-35 Green Bund | |
| ISIN | DE000BU3Z005 | DE000BU3Z047 |
| Total sold | E500mln | E1bln |
| Allotted | E422mln | E931mln |
| Previous | E495mln | E2.386bln |
| Avg yield | 2.39% | 2.58% |
| Previous | 2.37% | 2.62% |
| Bid-to-offer | 3.01x | 1.92x |
| Previous | 3.49x | 1.05x |
| Bid-to-cover | 3.57x | 2.07x |
| Previous | 3.53x | 1.32x |
| Avg Price | 99.35 | 99.34 |
| Low Price | 99.35 | 99.34 |
| Pre-auction mid | 99.298 | 99.294 |
| Prev avg price | 99.53 | 98.98 |
| Prev low price | 99.52 | 98.96 |
| Prev mid-price | 99.478 | |
| Previous date | 17-Jun-25 | 08-Apr-25 |
BOE: Bailey Sees UK Experience With Steeper Curve Part of Global Phenomenon
Bailey speaking on global curves and the UK experience:
- "BANK OF ENGLAND'S BAILEY: WE HAVE SEEN STEEPER YIELD CURVES, THAT IS GLOBAL PHENOMENON" - Reuters
- UK EXPERIENCE IS NOT OUT OF LINE WITH OTHER MARKETS
- CAUSE OF STEEPER YIELD CURVE REFLECTS GREATER UNCERTAINTY ON TRADE POLICY"
He's speaking in front of lawmakers on the BoE's financial stability report - unlikely to get much on monetary policy specifically - but any references to UK inflation or the jobs market will be watched carefully. Livestream here: https://www.parliamentlive.tv/Event/Index/e1eb2a6b-6c37-43d3-a69b-566e1b7a84ab
