S. Korea's debt risk premium hits 16-month high

SEOUL, Sept. 14 (Yonhap) -- The cost of insuring South Korea's sovereign debt against default shot up to a 16-month high on Wednesday, hit by escalating risks over the eurozone debt crisis, data showed.
The spread on credit default swaps (CDSs) for South Korea's 5-year dollar-denominated currency stabilization bonds came in at 155 basis points, the highest since May 2010, according to data by the Korea Center for International Finance (KCIF).
A basis point is 0.01 percentage points. The spread on CDSs reflects the cost of hedging credit risks on corporate or sovereign debt.
"The spread on Korea's CDS increased as the Korean financial markets are still vulnerable to external risks stemming from concerns about health of Europe's banks, which warrants close watch," said an official at the KCIF.
The cost of insuring Korea's debt against default, which stood at 101 basis points as of Aug. 1, rose by about 20 basis points, hit by the first-ever U.S. credit downgrade. The spread on CDS expanded their gains on deepening eurozone debt fears.
Underpinning growing concerns about the eurozone debt crisis, Moody's Investors Service on Wednesday cut its ratings on leading French banks, including Societe Generale and Credit Agricole, by one notch, citing their exposures to the debt-ridden Greece. The agency left BNP Paribas on negative watch for a possible downgrade.
The spread on South Korea's CDSs reached a record 699 basis points on Oct. 27, 2008 when the country was in the midst of the global financial crisis.