South Korean CDS spreads tighten after earlier panic protection buying

The cost of protection on South Korean sovereign US dollar credit dropped from this week’s higher levels as market sentiment improved, but dealers said that the market is still nervous and there could be more volatility in the credit default swaps market.

The credit default swap spread on Korean five-year US dollar sovereign credit surged this week on panic credit protection buying as market participants feared that SK Global’s accounting scandal could have ramifications throughout the country’s financial system. Sentiment further deteriorated as diplomatic tensions with North Korea continued to worsen.

On Tuesday, 10 executives of SK Group, SK Global’s parent company and Korea’s third largest conglomerate, were indicted on accounting fraud

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