Bond market sentiment improved from the previous month as expectations for rising inflation and exchange rates weakened, according to the Korea Financial Investment Association (KOFIA).
The composite Bond Market Sentiment Index (BMSI) for next month came in at 96.3, up 5.5 points from the previous month, KOFIA said in its 'May 2026 Bond Market Indicators' report released Wednesday. The BMSI measures bond market sentiment, with readings above 100 indicating favorable market conditions with expectations of rising bond prices and falling interest rates.
In the survey, 93 percent of respondents said they expect the Bank of Korea to hold the base rate at the Monetary Policy Committee meeting on the 10th of this month. Only 6 percent predicted a rate hike, while 1 percent anticipated a cut. However, expectations for a rate hike at the April MPC meeting increased from the previous survey due to concerns over inflation driven by high oil prices and a weak won amid prolonged geopolitical risks in the Middle East.
Market interest rate-related bond market sentiment registered 102.0, improving from 99.0 in the previous month. Despite uncertainties in global bond markets, expectations of foreign capital inflows following Korea's inclusion in the World Government Bond Index (WGBI) in April contributed to the improved sentiment. Respondents expecting higher rates fell 2 percentage points to 23 percent, while those anticipating lower rates rose 1 percentage point to 25 percent.
For inflation-related bond market sentiment, 31 percent of respondents expected prices to rise, down 19 percentage points from the previous month, while those expecting prices to fall rose 12 percentage points to 12 percent. While expectations for rising prices remain dominant due to higher international oil prices, the number of respondents anticipating falling prices increased following the government's implementation of maximum petroleum price controls.
Perceptions that the exchange rate, which recently surged to the 1,500 won level per dollar, is unlikely to rise further have also expanded. Respondents expecting a higher exchange rate fell 11 percentage points to 24 percent, while those anticipating a weaker won rose 4 percentage points to 19 percent.