CZK: Koruna Tad Firmer, Inflation Accelerates

German ASWs vs. 3-month Euribor 0.2-0.7bp firmer on the day, with the long end of the swap curve outperforming once again.

• The Buxl spread hovers around -35bp, eying January closing highs at -34.08bp.
• In outright swaps, Commerzbank note that “Dutch dynamics are increasingly visible at the ultra-long end. The 10-/30-Year curve has pushed to a new high, accompanied by a tightening in the 3s/6s basis, pointing to fixed paying interest in the ultra-long curve. The decoupling of Buxl spreads from the swap curve also indicates that the dynamics are swap-driven. Over the past five sessions, Buxl spreads have richened by ~4bp, outperforming the entire ASW structure”.
• They go on to flag that “it is hard to tell whether these dynamics are the result of Dutch flows in anticipation of the pension fund transition, or fast money anticipating these flows. If anything, the collapse of the Dutch government has probably removed the tail risk of a delay to the pension reform. The normalisation of the EUR curve compared to other markets therefore has further to run”.

The Eurozone May services PMI was revised up to 49.7 (vs 48.9 flash, 50.1 prior), following an upward revision in France and a stronger-than-expected Italian print. We estimate the Germany/France combined services PMI at 47.9 (vs 48.3 prior), and the ex-Germany/France measure at 52.8 (vs 51.6 flash, 53.2 prior). 

That helps the composite PMI remain just about in expansionary territory for the fifth consecutive month (it has had a range of 50.2-50.9 through this year), consistent with positive, but sluggish growth. A reminder that the ECB is expected to revise its GDP projections lower at tomorrow's decision, but this will likely be centred in 2026. See more in our ECB preview.

Notes from the Eurozone-wide services release:

• "New business continued to decline, stretching the current sequence of decrease to four months. The deterioration in demand for services was the most pronounced in six months, albeit modest. A sharper drop in international orders was partly to blame, with export sales also falling to the quickest degree since November last year".
• "Outstanding business volumes were depleted for a thirteenth successive month in May. This was facilitated to some degree by greater workforce numbers, with services employment rising again"
• "Muted hiring activity came amid another month of subdued business confidence. Although future output expectations strengthened, they remained weak by historical standards".
• "There was little movement on the inflation front, with rates of input cost and output charge inflation holding fairly close to those seen in April and remaining above the respective survey averages".

• US Cash USTs are trading cheaper and the belly is underperforming.
• While the early price action saw the US Curves mostly unchanged, worth watching the longer end part of the Curve in US Treasuries and on this side of the Pond, Buxl (UBM5) look to break below 121.00, USU5 tests 112.00 and WNU5 is through 115.00.