The Korea Financial Investment Association noted on the 27th that a survey found the investment sentiment in the domestic bond market is expected to retreat in January 2025 compared to this month.
The association released the 'January 2025 bond market index' on the same day. According to the data, the comprehensive bond market index (BMSI) for January of next year stands at 103.1, a decrease of 8.4 points from the previous month (111.5).
The BMSI is a psychological indicator derived from a survey of bond market experts, indicating that a reading above 100 suggests rising bond prices (and falling interest rates), meaning that market sentiment is favorable. Conversely, a reading below 100 signifies a contraction in sentiment in the bond market.
This is interpreted as a deterioration in the bond market sentiment for January next year, as concerns spread regarding the rapid rise in the won-dollar exchange rate and the Federal Reserve's (Fed) potential reduction in the number of interest rate cuts next year.
The interest rate outlook BMSI was recorded at 92.0. This is a drop of 20 points from the previous month (112.0), indicating a worsening sentiment in the bond market.
Regarding market interest rate outlooks, 60% of bond market experts surveyed observed a 'steady' trend. The percentage of respondents expecting rising interest rates was 24%, an increase of 12 percentage points from the previous month (12%). In contrast, the percentage of experts who predicted falling interest rates was 16%, down 8 percentage points from the previous month (24%).
The inflation BMSI rose to 85.0, up 12 points from the previous month (73.0), indicating a strong trend towards stability in inflation-related bond market sentiment compared to last month.
Despite the potential increase in import prices due to high exchange rates, there appears to be significant expectation that the domestic consumer price index will maintain inflation rates in the 1% range, the association reported.
The BMSI for exchange rates showed a decrease of 44 points, standing at 66.0 compared to the previous month (110.0). The ratio of responses expecting the exchange rate to 'rise' was 39%, a jump of 18 percentage points from the previous month. Meanwhile, the proportion of respondents anticipating the exchange rate to fall was 5%, a sharp decline of 26 percentage points from the previous month (31%).
The association explained, 'Due to the Federal Reserve's hawkish monetary policy predictions favoring a strong dollar, alongside ongoing political uncertainties domestically, there is an increasing tendency to anticipate a weakening of the won.'