The risk premium on South Korea's currency bonds fell to pre-North Korea missile launch levels, an indication that uncertainties over heightened geopolitical risk in the region has diminished, a state-run research institute said Saturday.
The Korea Center for International Finance (KCIF) said that foreign exchange stabilization bonds due in 2025 traded at 96 basis points over U.S. Treasuries on Friday.
The spread on the bonds, which stood at 96 basis points before the missile launches, rose to 98 basis points immediately following the North's launch of seven missiles on Wednesday.
The spread on currency bonds that come due in 2014 remained unchanged at 83 basis points over benchmark U.S. Treasuries over the cited period, according to the KCIF.
"The fall of the spread is an indication that financial uncertainty surrounding the missile launches has dissipated," the center said.
A measure of South Korea's external credibility, the risk premium serves as a guideline for foreign borrowing by domestic banks and companies. Lower risk premiums translate into smaller overseas borrowing costs.
The country sells the currency bonds, whose proceeds are used to finance current market operations, with maturities ranging from five to 20 years.
Seoul, July 8 (Yonhap News)
Spread on currency bonds overseas returns to pre-missile launch levels |
