The cost of insuring South Korea’s sovereign debt against default spiked more than 90 basis points in September from a month earlier amid the European debt crisis, data showed Sunday.
According to the data by the Korea Center for International Finance, the credit default swap (CDS) premium on South Korea’s five-year foreign currency bonds closed at 219 basis points on Friday, up 24 basis points from the previous day and 91 basis points from Aug. 31.
The figure marks the highest level since the 246 basis points registered on May 1, 2009. A basis point is 0.01 percentage point.
The spread on CDSs reflects the cost of hedging credit risks on corporate or sovereign debt. The recent steep rise indicates a deterioration in the credit of South Korean government bonds.
According to the data, Friday’s CDS spread for South Korea was far higher than 187 basis points for France.
The surge in South Korea’s CDS premium was attributed to the ongoing global financial turmoil sparked by the debt crisis in Europe.
The center warned that the CDS premium on South Korean bonds could rise further as it may take more time for the international financial markets to firm up.
The spread on South Korea’s CDSs reached a record 699 basis points on Oct. 27, 2008 when the country was hit by the global financial crisis following the collapse of Lehman Brothers. (Yonhap News)