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Korea's risk premium falls despite NK missile launch

South Korea's credit default risk has gone south despite North Korea's latest launch of a new long-range ballistic missile, market sources said Thursday.

The credit default swap premium for South Korean foreign exchange stabilization bonds with a five-year maturity came to 57.09 basis points Wednesday, down 1.02 basis points from the previous session, according to financial information provider Market and Yonhap Infomax, the financial news arm of Yonhap News Agency.

The risk premium also declined for seven sessions running since last Tuesday.

The spread reflects the cost of hedging credit risks on corporate or sovereign debt. A rise implies a deterioration in the credit of sovereign bonds and higher costs for issuance. A basis point is 0.01 percentage point.


North Korea said Wednesday it had successfully launched the Hwasong-15 intercontinental ballistic missile capable of hitting the US mainland and completed its state nuclear force.

The drop in South Korea's credit default risk strikes a sharp contrast to its surge in September amid sharp tensions stemming from a hectic war of words between US President Donald Trump and North Korean leader Kim Jong-un over the North's nuclear and missile programs.

The risk premium soared to a 19-month high of 75.43 basis points on Sept. 27. Defying international sanctions, Pyongyang conducted its sixth and most powerful nuclear test in early September. North Korea's latest missile launch also had little impact on South Korea's foreign exchange and stock markets.

According to market watchers, foreign and domestic investors appear immune and impervious to North Korean provocations, believing they would not develop into an armed conflict or other extreme situations.

"The market is familiar with North Korea's provocations," said Seo Hyang-mi, an analyst at Hi Investment & Securities Co. "Without putting a premium on North Korea risks, market participants are not reacting sensitively."

Global rating agency Standard & Poor's reaffirmed Wednesday that North Korea's provocations may continue sporadically, which will not have a great impact on South Korea's sovereign credit rating of AA. (Yonhap)