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Korea’s CDS premium drops on eased eurozone crisis
By Korea HeraldPublished : April 2, 2012 - 21:28
The cost of insuring South Korea’s sovereign debt against default has dropped on the back of eased eurozone debt woes and increased hopes of the U.S. economy recovering, data showed Monday.
The credit default swap premium on South Korea’s foreign currency bonds with five-year maturities reached 125 basis points on March 30 on the New York market, down 11 basis points from a month ago, according to the data by the Korea Center for International Finance. A basis point is 0.01 percentage point.
On March 19, the CDS premium on the five-year currency bonds fell to 107 basis points, the lowest since the summer of 2011, the KCIF said.
The spread, which reached a high of 229 basis points on Oct. 4, fell to 127 basis points on Oct. 28. Since then, the CDS premium has hovered above 130 basis points.
The cost of insuring South Korea’s five-year foreign currency bonds against default soared to an all-time high of 699 basis points on Oct. 27, 2008, when the country was hit by the global financial crisis following the collapse of Lehman Brothers.
The spread on CDS reflects the cost of hedging credit risks on corporate or sovereign debt. A steep rise indicates a deterioration in the credit of South Korean government bonds and higher costs for bond issuances.
Higher premiums can also push up financial lending costs of local banks, which can affect the performance of businesses and raise overall economic uncertainties.
Meanwhile, the CDS premium on South Korean banks and companies also trended lower amid eased concerns over the European and the U.S. economies, according to the data.
The average CDS premium on South Korean lenders and companies dropped by up to 30 basis points over the cited period.
The spread on South Korea’s foreign exchange stabilization bonds also decreased sharply, with the comparable figure for bonds that mature in 2014 falling by 22 basis points over the cited period, the data showed.
The KCIF said the fall in premiums reflects subdued worries over the ongoing eurozone crisis that has spread to countries like France and Germany, although there were no improvements in the fundamentals of the eurozone economy. (Yonhap News)
The credit default swap premium on South Korea’s foreign currency bonds with five-year maturities reached 125 basis points on March 30 on the New York market, down 11 basis points from a month ago, according to the data by the Korea Center for International Finance. A basis point is 0.01 percentage point.
On March 19, the CDS premium on the five-year currency bonds fell to 107 basis points, the lowest since the summer of 2011, the KCIF said.
The spread, which reached a high of 229 basis points on Oct. 4, fell to 127 basis points on Oct. 28. Since then, the CDS premium has hovered above 130 basis points.
The cost of insuring South Korea’s five-year foreign currency bonds against default soared to an all-time high of 699 basis points on Oct. 27, 2008, when the country was hit by the global financial crisis following the collapse of Lehman Brothers.
The spread on CDS reflects the cost of hedging credit risks on corporate or sovereign debt. A steep rise indicates a deterioration in the credit of South Korean government bonds and higher costs for bond issuances.
Higher premiums can also push up financial lending costs of local banks, which can affect the performance of businesses and raise overall economic uncertainties.
Meanwhile, the CDS premium on South Korean banks and companies also trended lower amid eased concerns over the European and the U.S. economies, according to the data.
The average CDS premium on South Korean lenders and companies dropped by up to 30 basis points over the cited period.
The spread on South Korea’s foreign exchange stabilization bonds also decreased sharply, with the comparable figure for bonds that mature in 2014 falling by 22 basis points over the cited period, the data showed.
The KCIF said the fall in premiums reflects subdued worries over the ongoing eurozone crisis that has spread to countries like France and Germany, although there were no improvements in the fundamentals of the eurozone economy. (Yonhap News)
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Articles by Korea Herald
