Bond, Rate, and Inflation Sentiment All Worsen in June... "Base Rate Expected to Remain Unchanged"

Korea Financial Investment Association Releases "June Bond Market Index"

Overall Index Drops by 15.3 Percentage Points to 81.0

Concerns over a potential increase in the U.S. benchmark interest rate and rising inflation have further weakened sentiment in the bond market for June. The majority of bond market experts predict that the Bank of Korea will maintain its current policy rate at the Monetary Policy Board meeting scheduled for the 28th.

The Korea Financial Investment Association (KOFIA) announced on the 26th the results of its “June 2026 Bond Market Survey Indicator,” which was based on a survey conducted from May 14 to 19 among 100 professionals involved in bond holdings and operations.

The overall Bond Market Survey Indicator (BMSI) fell to 81.0, down 15.3 percentage points from the previous month. A BMSI reading below 100 indicates expectations of declining bond prices (rising interest rates) and suggests that sentiment in the bond market is deteriorating. Conversely, a reading above 100 suggests expectations of rising bond prices (falling interest rates) and indicates an optimistic market outlook.

KOFIA explained, “This is attributed to concerns about a shift in the U.S. interest rate hike cycle as well as expectations for rising inflation and market interest rates.”

In line with this, 99% of survey respondents answered that the Bank of Korea would keep the base rate unchanged at the Monetary Policy Board meeting on the 28th, up 4 percentage points from the previous survey. KOFIA commented, “Uncertainties regarding the future path of the U.S. base rate, along with mixed domestic and global variables such as persistently high oil prices and inflation stemming from the war in the Middle East and the upcoming local elections in June, appear to have influenced this outcome.”

Bond market sentiment regarding market interest rates also worsened, dropping from 102.0 last month to 67.0 this month. The proportion of respondents expecting higher interest rates rose by 22 percentage points to 45%, while those expecting lower rates decreased by 13 percentage points to 12%. KOFIA analyzed that these trends reflect concerns over inflation and the fact that the yield on the 30-year U.S. Treasury bond exceeded 5%.

The inflation BMSI also declined from 81.0 last month to 53.0. A total of 47% of respondents (up from 31% last month) expected inflation to rise, while no respondents (compared to 12% last month) expected inflation to fall. The protracted war in the Middle East has pushed up prices of commodities such as petroleum products, and the expansionary fiscal trend and robust performance of semiconductor companies have led to a rise in the number of respondents forecasting higher inflation.

Sentiment regarding exchange rates improved compared to the previous month, with the indicator rising from 95.0 to 98.0. The share of respondents expecting a higher exchange rate fell by 6 percentage points to 18%, while those expecting a lower exchange rate dropped by 3 percentage points to 16%. The proportion expecting the exchange rate to remain steady increased to 66%, up from 57% last month.

KOFIA added, “There is a mix of domestic and global factors, such as increased exports due to the semiconductor boom and the potential recovery of maritime transportation in the Middle East, and the share of respondents expecting a stable exchange rate has increased compared to last month.”

This content was produced with the assistance of AI translation services.