The US sent its warships to the Korean Peninsula in a show of strength as Washington officials have not taken the military option against North Korea off the table.

In a report, Moody's said, "The increased -- albeit still very low -- probability of conflict on the peninsula is credit negative for Korea's government."

"Geopolitical tensions continue to pose the most salient event risk for Korea and are a key constraint on the sovereign's credit profile," it said.

In a sharp departure from previous harsh rhetoric against North Korea, US President Donald Trump told Bloomberg earlier this week that he would meet North Korea's young leader, Kim Jong-un.

"If it would be appropriate for me to meet with him, I would -- absolutely. I would be honored to do it," Trump was quoted as saying in the Bloomberg interview.

Last Saturday, North Korea fired off a ballistic missile, but the test failed, South Korean military officials said.

"Unpredictable actions from North Korea and an evolving US foreign policy stance imply that the probability of outright conflict on the Korean peninsula has increased, although it remains very low," Moody's said.

"We base this assessment on our view that the South's military alliance with the US is strong and credible," it said. (Yonhap)