Bond Experts Say "Inflation Will Continue to Rise Next Month"

[Asia Economy Reporter Junho Hwang] Domestic bond managers expect the inflationary trend to continue next month. Although the U.S. has implemented a ‘Giant Step’ (a 0.75% base interest rate hike) and interest rate hikes are anticipated in South Korea as well, it is forecasted that it will be difficult to easily curb the inflation caused by high oil prices.

According to the Korea Financial Investment Association on the 20th, the comprehensive bond market sentiment index (BMSI) for next month is expected to improve to 89.0 (previous month 76.7), indicating that market sentiment is anticipated to be better than the previous month. This means that the majority expects the investment sentiment in the bond market to improve next month.

First, bond experts predicted that the inflationary trend would continue. Last month, those expecting inflation (46.0%) and those expecting stable prices (48.0%) for this month were roughly equal in proportion. However, for next month, the proportion of those who believe inflation will not subside despite the base interest rate hike increased significantly to 65.0%.

An association official explained, "With the rise in international oil prices and raw material costs, the high inflation trend continues, and the consumer price inflation rate in May exceeded 5%, resulting in an increased proportion of respondents expecting inflation in the July BMSI."

As inflation expectations became dominant, demand for real assets is expected to increase, leading to a decrease in bond demand. With a significant rise in those forecasting interest rate hikes, the bond BMSI recorded 49.0, compared to this month’s forecast of 33.0.

The dollar is expected to remain strong next month. Following last month, more than 60% of experts are betting on a stronger dollar (exchange rate increase). However, the BMSI index was 44.0 last month and recorded 43.0 this month. The association explained, "While U.S. interest rate hikes and economic slowdown are factors strengthening the dollar, the easing of China’s lockdown measures and the announcement of economic stimulus measures have improved investment sentiment, resulting in an increased proportion of respondents expecting stable exchange rates in July."

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