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Korea’s CDS premium jumps most in 32 months

The cost of insuring South Korea’s sovereign debt against default climbed the most in 32 months, growing two times faster than that of eurozone countries, data showed Friday.

The credit default swap premium on South Korea’s foreign currency bonds with five-year maturities reached 220 basis points as of the end of September, up 92 basis points from a month earlier, according to the data by the Korea Center for International Finance.

The increase marks the biggest monthly gain since 106 basis points in January 2009. A basis point is 0.01 percentage points.

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.

In the same period, the CDS premium on 15 Western European countries, including Britain and Denmark, gained 49 basis points from the previous month, according to the Markit iTraxx SovX Western Europe Index.

The iTraxx SovX Asia Pacific Index, meanwhile, showed that the average CDS premium of 10 countries in Asia and Oceania climbed 81 basis points over the cited period.

South Korea’s CDS premium has been trending higher amid persisting economic uncertainties in Europe and the United States.

The spread on South Korea’s foreign exchange stabilization bonds also increased steeply, with the figure for bonds that mature in 2014 reaching 242 basis points as of the last month, up 75 basis points from end-August, the data showed. 

(Yonhap News)