October Bond Market Takes a Wait-and-See Stance Amid Mixed Tightening Uncertainty and Won Strength

[Financial News] Sentiment in the October bond market took a wait-and-see stance amid various external factors.
On the 16th, the Korea Financial Investment Association’s October Bond Market Indicators survey of 100 bond-market experts showed that next month’s composite Bond Market Sentiment Index (BMSI) stood at 89.7, up 0.2 points from the previous month.
The BMSI is an indicator of sentiment in the bond market. A reading of 100 or higher indicates favorable market sentiment, with expectations for bond prices to rise and interest rates to fall.
The result was attributed to a mix of domestic and external factors. Uncertainty over global monetary tightening is growing ahead of monetary-policy decisions by the United States and Japan, while the pace of domestic policy-rate increases could also be adjusted.
The interest-rate outlook BMSI was 99.0, unchanged from the previous month. Ahead of this month’s Federal Open Market Committee (FOMC) meeting, upward pressure on global interest rates conflicted with downward pressure on inflation stemming from the stronger Korean won. As a result, both the number of respondents expecting rates to rise and those expecting them to fall increased from the previous month. Respondents expecting higher interest rates accounted for 22%, while those expecting lower rates accounted for 21%; both figures were up 6 percentage points from the previous month.
The inflation BMSI improved somewhat to 100.0, up 3 points from the previous month. As the domestic consumer inflation rate last month came in slightly below expectations, the proportion of respondents expecting inflation to fall rose 7 percentage points from the previous month to 13%. The proportion expecting inflation to rise also increased by 4 percentage points to 13%.
The exchange-rate BMSI rose 10 points from the previous month to 109.0. Increased dollar-selling volumes resulting from strong exports, together with the continued strength of the Korean won, led to a decline in the proportion of respondents expecting the exchange rate to rise. Respondents expecting a higher exchange rate accounted for 4%, down 10 percentage points from the previous month. Meanwhile, the proportion expecting the exchange rate to remain unchanged stood at 83%, up 10p% from the previous month.

[email protected] Minji Seo Reporter