S. Korea’s CDS premium hits lowest since 2008

South Korea’s credit default risk has dropped to its lowest point in over 12 years, to a level last seen before the 2008 global financial crisis, government data showed Wednesday.

The credit default swap premium on the country’s foreign exchange stabilization bonds with a five-year maturity came to 27 basis points as of Tuesday on the New York market, according to the Ministry of Economy and Finance.

The spread on CDS reflects the cost of hedging credit risks on corporate or sovereign debt. A steep rise indicates a deterioration in the perceived ability of the South Korean government to service its bonds and higher costs for bond issuances.

 

The CDS premium in 2018 took a steep fall, down 14 basis points from 53 basis points, due to geopolitical risk mitigation such as inter-Korean relations’ improvement. The March 18 CDS premium once hit the lowest mark of 28 basis points, on expectations of major countries’ interest rates rising.

Since May, the CDS premium has hovered around 30 basis points, despite the US-China trade war that increased market uncertainties. The global CDS premium, including Korea, dipped on eased concerns over investor sentiment.

“Even under the difficult circumstances, the figure showed that foreign investors’ positive perspective on Korea’s economy,” said Hong Nam-ki, the Deputy Prime Minister and Finance Minister.

Meanwhile, the CDS premium for Korea also marked the lowest level among emerging countries. The country’s corresponding figure came lower than those for China and India, which stood at 38 basis points and 69 basis points respectively, according to the MOEF data. 

By Jie Ye-eun (yeeun@heraldcorp.com)