SEOUL, May 19 (Yonhap) -- South Korea's credit default risk has fallen to a level before the recent nuclear threats made by North Korea in a sign of eased geopolitical tensions that have weighed down the local stock market for the past few months, data showed Sunday.
The credit default swap (CDS) premium of Asia's fourth-largest economy stood at 69.63 basis points in the New York market as of last Friday, only 1.81 basis points higher than the figure tallied in early March, when Pyongyang unilaterally nullified the inter-Korean truce, according to the data by the Korea Center for International Finance.
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 government bonds and higher costs for bond issuances. A basis point is 0.01 percentage point.
South Korea's CDS premium had surged as much as 22 basis points to 89.91 basis points by April 5, after the North declared a wartime status for the Korean Peninsula and began to reactivate its nuclear reactor.
But as Pyongyang didn't go through with its announced missile launch plan for the birthday of the regime's late founder and no provocations against the Western world followed, Seoul's sovereign default risk moved downward, the data showed.
The decline of South Korea's default risks is also attributable to the key interest rate cut by the central bank. The Bank of Korea slashed the rate by a quarter percentage point to 2.50 percent on May 9, for the first time in seven months in a bid to boost the economy.
The trend of South Korea's CDS premium has become an important gauge to watch as it demonstrates the country's stability in the financial market, especially amid the rapid fall of the Japanese yen which is feared to hurt South Korean exporters.
South Korea once saw its CDS premium soar to more than 80 basis points in October last year, when the local currency market got rattled by the yen's fast descent, according to the data.
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