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Korea’s Insolvency Risk at 88-month Low
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Korea’s Insolvency Risk at 88-month Low
  • By Cho Jin-young
  • May 19, 2015, 10:45
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The Korea Center for International Finance announced on May 18 that the credit default swap (CDS) premium for Korea’s five-year foreign exchange stabilization bond reached 46.2 basis points on May 15, the lowest since December 31, 2007. A basis point is equal to one-hundredth of one percentage point.

The CDS premium added up to 60.3 bp on April 30 last year and went down to 54.3 bp eight months later, but reached 64.8 bp on Jan. 30, 2015 due to the financial crisis in Russia and concerns on deflation amid plummeting oil prices. More recently, however, international oil prices have stabilized, and the economic indices including the trade surplus have improved to cause the CDS premium to drop to 54.5 bp in Feb., 53 bp in March, and 50 bp in April. Moody’s adjusted Korea’s sovereign credit rating from stable to positive last month to accelerate the drop.

In the meantime, Japan recorded a CDS premium of 38.185 bp on May 15, lower than that of Korea, despite Fitch’s credit rating adjustment from A+ to A made on April 27. Its CDS premium was at 53.5 bp in January this year and 43 bp, 34.5 bp and 35.5 bp in the following months.