Korea 11th in OECD on default risk
By Cho Jin-seo
Staff reporter
Korea’s risk of defaulting has been reduced by two thirds over the past 12 months and its economy is deemed healthier than those of the so-called PIGS nations in Southern Europe, data showed on Thursday.
According to the Korea Center for International Finance and Yonhap News Agency, the spread on credit default swaps (CDS) for Korea’s dollar-denominated currency stabilization bonds was 102.55 basis points in the first half of the year, down from 289 in the first half of 2009.
The CDS spread is a premium that a buyer of the bonds pays for a seller, and is often viewed as a barometer of a nation’s financial default risk.
The spread is usually denominated by basis points, which is 0.01 percentage point. A high spread means that the market believes the country that issues the bonds is more likely to go bankrupt and thus be unable to pay back the bond holders.
In the first half of 2009, Korea’s spread was the fourth highest among 28 OECD nations (The data excludes Canada, Luxemburg and Sweden), only after Iceland, Hungary, Turkey and Mexico.
A year later, it is now placed 11th on the list. This means that the global investors are seeing Korea as safer than the Southern European nations of Greece, Italy, Spain and Portugal as well as Poland, but still less so than the United Kingdom, Belgium, Czech Republic, Chile, and the United States.
Greece ranked first on this volatility barometer with 506.03 basis points, followed by Iceland with 432.33 and Hungary with 234.84.
The data was enough to show that Korea’s economy has recovered from the paranoia of a year ago, when global investors were rapidly pulling their short-term loans from Korean banks and assets. The exodus made the won-dollar exchange soar to 1,575 won per dollar in February 2009. Now it has stabilized at around 1,200 won.
Still, the market data did not match last week’s flattering report from Dagong, a Chinese ratings agency. Its report on sovereign credit ratings of 50 large nations put Korea on an equal footing with Japan, France and the United Kingdom, at AA-.
The report, which was relatively favorable to Asian countries than ones published by Western ratings firms, caused a sensation last week by saying that the Chinese economy (AA+) is safer than that of the United States (AA), which contradicts common perception.