The credit default swap premium for Korean sovereign bonds, which shows a country's risk of default, has reached the same level as China's, which holds the largest foreign currency reserve in the world. That means the two countries are considered the safest in the world from bankruptcy.
According to the Korea Center for International Finance on Monday, the CDS premiums on five-year sovereign bonds issued by Korea and China both stood at 104 basis points on Friday (1 basis point = 0.01 percentage point). The last time the CDS premiums of the two countries were the same was on June 30, 2006, two years before the global financial crisis.
The CDS premium is the interest rate for a credit default swap derivative that compensates for losses in case the country or company that issued the bonds goes bankrupt. The higher the premium, the higher the risk of default, so the issuer of the debt instrument has to pay a higher interest.
The difference in the CDS premium between Korea and China was 26 basis points at the end of 2010 but narrowed to 14 in late 2011 and two at the end of June. The gap disappeared because Korea benefited from the rise in its sovereign credit rating last month, while China suffered due to concerns over its slowing economic growth.
Chinese growth is expected to slow to less than 8 percent this year as exports are hit by the global slump.