[Sejong=Asia Economy Reporter Moon Chaeseok] The credit default swap (CDS) premium, an indicator reflecting the risk of national default in South Korea, has recorded its lowest level since the global financial crisis.
The Ministry of Economy and Finance announced on the 6th that the CDS premium for South Korean government bonds (based on 5-year Eurobonds) was 19 basis points (bp, 1bp=0.01 percentage points) as of the 5th (New York market). This is the lowest level since the 2008 global financial crisis. The CDS premium is a fee paid by bondholders to principal guarantors to secure the principal in case of bond default. It functions as a kind of insurance premium against bond default risk.
The fact that the CDS premium has reached its lowest level can be interpreted as South Korea's external creditworthiness reaching its highest level since the 2008 financial crisis. This is because a lower CDS premium indicates lower credit risk of the bond issuer. South Korea's CDS premium ranks 17th globally and is the lowest among emerging countries. Compared to major advanced countries, it is lower than France (23bp) and similar to Canada (18bp).
Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki evaluated on his Facebook on the same day, "The record low CDS premium reflects not only the recent improvement in global financial markets and favorable external conditions but also highlights the firm trust of foreign investors in South Korea's differentiated economic resilience and sound external soundness during the COVID-19 pandemic phase."
Minister Hong emphasized, "We will continue to mobilize all capabilities to strive for the recovery and leap of our economy, and will make every effort to manage internal and external risk factors and enhance external creditworthiness."
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