TITLE [Economy] S. Korea's Default Risk Rises in May Date 2012.06.13 FILE S. Korea's Default Risk Rises in May
The credit default swap (CDS) premium for South Korea’s sovereign debt is rising again due to the prolonged euro zone fiscal crisis.
The Financial Supervisory Service (FSS) said on Wednesday that the premium on five-year CDS bonds issued by the Korean government had risen to 142-basis points by the end of May, a 21-basis point increase from the previous month.
The CDS is a financial derivative product which compensates for losses incurred when a nation or a company that issued bonds default on their debt. A higher CDS premium, which is a gauge of a nation’s default risk, indicates a deteriorated sovereign credit rating.
FSS said although South Korea’s CDS premium rose due to the European fiscal crisis, it is at a similar level of China's, an assurance that there is no need to be alarmed.