South Korea's credit default risk has hit the lowest level this year amid eased tensions on the Korean Peninsula.

According to data by the Korea Center for International Finance, the credit default swap, or CDS, premium for South Korean foreign exchange stabilization bonds with a five-year maturity fell one basis point to reach 42 basis points on Friday's market close in New York. 

The figure has dipped to a record low since January eleventh when the CDS premium also recorded 42.

The figure is down by more than 30 basis points from 76 last September when inter-Korean relations were on a downward spiral in the wake of North Korea's sixth nuclear test. 

The credit default swap is a financial derivative that compensates for losses when the country or company that issued bonds go bankrupt.

The CDS premium reflects the cost of hedging credit risks on corporate or sovereign debt. A rise implies higher risk of bankruptcy for a government or business entity.