The cost of insuring Korea's sovereign debt against default shifted to a downturn in June amid signs that the eurozone debt crisis may ease, data showed Sunday.

The credit default swap (CDS) premium on South Korea's foreign currency bonds with five-year maturities reached 130 basis points on Thursday, down 12 basis points from a month earlier, according to the data by the Korea Center for International Finance (KCIF). A basis point is 0.01 percentage point.

After soaring to 150 basis points in January, the spread dropped to 136 basis points in February, 123 basis points in March and 121 basis points in April before rising to 142 basis points in May.

The cost of insuring Korea's five-year foreign currency bonds against default soared to an all-time high of 699 basis points on Oct. 27, 2008, when the country was hit by the global financial crisis following the collapse of Lehman Brothers.

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.

Higher premiums can also push up financial lending costs of local banks, which can affect the performance of businesses and raise overall economic uncertainties.

According to the data, the CDS premium on China's sovereign debt came to 129 basis points on Thursday. The spread difference between South Korea and China was the lowest since April 2006.

The drop in Korea's CDS premium came as European leaders on Thursday huddled to find a way out of the region's debt crisis.

Wrapping up a two-day summit, they put forward a plan to inject cash to beleaguered banks and cut borrowing costs for Italy and Spain, assuaging market concerns.

The KCIF also said foreign investment banks are positive about Korean foreign currency bonds, with several issuing "buy" recommendations.

It, however, warned that investors in Asian sovereign debts will likely tend to avoid risks in the second half due to concerns over a lengthening eurozone crisis and a slump in the Chinese economy. (Yonhap)