NZGBS: Slightly Weaker, Fed Chair Powell’s Speech Offers Few Surprises

In local morning trade, NZGBs are slightly weaker after Fed Chair Powell's anxiously awaiting speech delivered few surprises. He stressed the FOMC's commitment to the 2% goal and that "higher for longer" remains the policy stance.

• Powell said he’s pleased to see inflation coming down but is not yet fully convinced that price pressures are on a sustainable path downward to the Fed’s 2% target, mainly because inflation excluding food and energy prices remains more than twice that level. Additionally, he disappointed market hopes he would clarify the neutral rate, r-star, noting there is no precise measure.
• Overall, the speech didn’t alter market perceptions that the Fed will likely pause in September and assess the incoming data to guide future policy decisions. There is a cumulative 15bp of tightening priced for the next 2 meetings.
• US rates were mildly weaker after the bell on Friday, near the middle of the session range after early event-driven volatility. US tsy 10-year ended little changed at 4.24% despite trading in a whippy 9bp range. The 2-year yield increased 6bp to 5.08%, contributing to a flatter yield curve.
• Swap rates are flat to 2bp lower.
• RBNZ dated OIS pricing is little changed.
• The local calendar is empty until Building Permits on Wednesday.