Korea's credit default swap (CDS) premium has recently turned downward. The CDS premium is an indicator that shows the external creditworthiness of a country that issued bonds. The recent domestic political uncertainty has led to an upward trend.
According to financial information provider Yonhap Infomax on the 19th, the five-year Korean CDS premium closed at 38.16 basis points (1 basis point = 0.01 percentage points) on the 17th (local time) in the U.S. New York market. This is an increase of 0.27 basis points compared to the previous transaction day, but it shows a reduced upward momentum compared to a week ago.
So far, the CDS premium averaged around 34 basis points in November last year, but as the state of emergency and the impeachment crisis continued, political uncertainty increased, leading to an upward trend. In particular, just before the execution of a second arrest warrant against President Yoon Suk-yeol on the 13th, the premium recorded 40.42 basis points. It is the first time since April 19, 2024 (40.07 basis points) that the CDS premium has surpassed 40 basis points on a closing basis after about nine months.
The CDS premium, which peaked on the 13th, fell for three consecutive days starting the 14th. On the 14th, it recorded 39.31 basis points, a decrease of 1.11 basis points compared to the previous transaction day, and on the 15th, it closed at 38.84 basis points, down 0.47 basis points. On the 16th, it also fell by 0.95 basis points to 37.89 basis points.
Moody's, one of the international credit rating agencies, noted in its recently released material titled '2025 Outlook on Country Creditworthiness in the Asia-Pacific Region' that "the impact of the short-term martial law in South Korea is continuing," adding that "strong rule of law is allowing for prompt decision-making and the functionality of other institutions, including currency and fiscal policy, but prolonged disruptions to economic activity and weakened consumer and corporate sentiment could be credit negative."
Moody's also stated that if this political uncertainty continues for a long time, it could pose risks to growth, forecasting that South Korea's economic growth rate this year would be lower at 2.1% compared to last year's 2.3%.
Along with the CDS premium, the won-dollar exchange rate, which has been soaring amid ongoing political uncertainty, is also showing signs of stabilization. In the Seoul foreign exchange market, the exchange rate soared to 1,472.50 won based on the weekly transaction closing price (3:30 p.m.) on the 30th of last month, but recorded 1,458.30 won on the 17th. Just before the state of emergency on the 3rd of last month, the exchange rate was 1,402.90 won.