Major war/conflict cycle commencing? (update 11) Nth/Sth Korea - Sth Korea's CDS spreads widen on war fears

Market is trying to figure if it will just 'blow over'.

I think we got a war coming.

HONG KONG, Dec 20 (IFR) – The cost of insuring South Korea’s sovereign debt is higher this morning after reports Seoul is pushing ahead with its military exercise while the broad market was lower amid the regional weakness in stock markets. Liquidity was strained in year-end trade with investors hesitant to take aggressive positions. The benchmark iTraxx investment grade index widened out to 104/107bp from Friday’s close of 104.64bp. South Korea’s 5-year CDS moved out to 96/101bp from Friday’s 90/94bp. It is now close to a two week high. “There was lack dialogue over the weekend, in terms of what is happening in the UN council, so no one wants to touch Korea right now,” said a Hong Kong-based trader at a European bank. “I don’t think people are thinking about war at this point in time, people think it will get resolved in the end,” he said. Standard & Poor’s, which has a A rating on South Korea’s debt rating with a stable outlook, said that war was not the likely scenario at the moment. "The outlook is still stable on our assumption this will not deteriorate into a wide military conflict," said Kim Eng Tan in a telephone interview.

South Korea's stock market was down 0.6%, off the early fall of 1.5% amid signs Seoul is pushing ahead with live firing drills from a disputed island despite threats of attack by Pyongyang and pressure from Russia and China to cancel the exercise. Tan added that although a war was still unlikely, risks of an escalation in conflict were currently "much higher" than they were a month or two ago. "If there is a ramp-up which we believe will almost inevitably lead to war, then we have to take some rating action and this could be quite serious. It may not just be a rating outlook change or even a one-notch downgrade. It could be a several-notch downgrade." Asian stock markets were jittery as tensions heightened on the Korean peninsula with the sharp sell-down in Chinese shares also weighing. The MSCI index of Asia-Pacific stocks outside Japan is down 0.6%.

Major war/conflict cycle commencing? (update 10) Nth/Sth Korea - War could be imminent

Expect US supported air strikes.

(URGENT) North Korea raised military preparedness on the west coast ahead of South Korea's live-fire drill: source

Major war/conflict cycle commencing? (update 9) Nth/Sth Korea

Should knock down all risk trades and side ways 'wanna be bullish market'.

To be watched very closely on Nth Korea response

From Yonhap 20/12/2010


SEOUL, Dec. 20 (Yonhap) -- South Korea's military plans to hold live-fire exercises later Monday from a border island shelled by North Korea last month, the Joint Chiefs of Staff (JCS) said, sending tensions soaring amid Pyongyang's threats to strike back if the drills go ahead.

The communist nation has warned that it would respond to the South's artillery drills from Yeonpyeong Island with "unpredictable self-defensive blows," sparking fears of a recurrence of last month's deadly clash in which the North bombarded the Yellow Sea island.

The shelling devastated the fishing village, killing four people, including two civilians.

"The military has decided to conduct the firing drill today (Monday)," said a JCS official, adding the exercise will be held south of the inter-Korean maritime border. "The exact time for the firing drill will depend on the weather conditions around the island area."

Sources said the drills are likely to be held between 11 a.m. and noon.

Officials said they were broadcasting warnings that those staying on the island take refuge. About 280 people, including residents, reporters and government officials, are staying on the island near the Yellow Sea border between the two sides, officials said.

"This exercise is a routine and legitimate one that we have regularly held from a long time ago to defend the northwestern islands," a JCS official said on condition of anonymity. "Representatives from the Armistice Commission and the United Nations Command plan to watch the drill."

South Korea is watching the North's military moves closely while maintaining full preparedness to respond to possible North Korean provocations, the official said, pledging to give an "immediate and strong" response in case of provocations.

Major war/conflict cycle commencing? (update 8) Nth/Sth Korea

The risk is air strikes from South Korea/US supported, if Nth Korea artillery is fired into Sth Korea - whilst military 'war games' continue on

This scenario may occur very soon.

NK warns of escalated tension

By Wang Zhaokun

North Korea warned Sunday that South Korea's plan to hold a naval live-fire drill in waters near the disputed west coast is escalating tensions on the Korean Peninsula.

"The enemy's provocative madness has been driving the situation on the Korean Peninsula to an uncontrollably extreme state. ... No one can expect how the situation will develop in the future," Pyongyang's official Korean Central News Agency said in a statement, according to AFP.

North Korea is now maintaining "maximum self-possession and self-control," the Xinhua News Agency quoted the statement as saying. "If an all-out war breaks out between the two sides, it will seriously affect peace and security not only on the Korean Peninsula, but also in the rest of the region."

South Korea's Joint Chiefs of Staff said last week that the naval drills, starting today, will include live-fire from ships into waters near Dae-cheong Island.

However, Pyongyang said a similar drill November 23, when the South fired artillery shells into its waters, triggered a tense exchange of artillery fire between the two sides in which four South Koreans were killed on Yeonpyeong Island, according to Reuters.

South Korea has staged a series of military exercises, including a massive four-day joint naval drill with the US last week, amid high tension following the November 23 incident.

Pyongyang's warning also came after South Korea's newly named defense chief, Kim Kwan-jin, said Friday at his confirmation hearing that Seoul will respond with air strikes if North Korea attacks again.

from China Global Times

Major war/conflict cycle commencing? (update 6) Nth/Sth Korea

Although it is not uncommon for skirmishes take place between Sth/Nth Korea, normally resolved with diplomacy or intervention (verbal) by the US/China/Japan. But this time a daylight attack on a Sth Korean claimed Island could up the ante into broader tensions and/or conflict.

from CNN

(CNN) -- A disputed maritime border. Long-standing tensions. And Tuesday, a sharp escalation of hostilities. North and South Korea fired at each other for about an hour on an island that sits off a disputed border. The deadly skirmish raised fears of war between the two rival nations, once again spiking tension in the entire region.

How did the latest hostilities begin?

South Korea said North Korea fired artillery Tuesday toward the border between the two nations. Two South Korean marines were killed and 18 soldiers and civilians were wounded.

South Korea had been conducting maritime military drills, which the North called "war maneuvers."

The North accused the South of "reckless military provocation" for firing dozens of shells inside North Korean territory around the South Korean island of Yeonpyeong.

Plumes of smoke billowed from the island of 1,300 people but it was not immediately clear how much damage was incurred. Many residents were fleeing to the South Korean port of Incheon.

Why did this happen?

Tension has been running particularly high in the Korean peninsula after the March 26 sinking of the South Korean warship Cheonan. Tuesday's incident, however, is one of the most serious that has occurred in recent years.

Map: N. Korea shells S. Korean island

The hostilities come as North Korea is undergoing transition -- the ailing and reclusive leader Kim Jong Il is believed to be in the process of transferring power to his son Kim Jong Un. Some analysts believe upcoming internal changes have prompted North Korea to flex its military muscle in recent days.

Tuesday's violence was also preceded by the revelation of a North Korean uranium enrichment program.

Has this happened before?

Yes, Yeonpyeong Island has come under attack before. Last January, South Korea reported that the North had fired shells that fell in waters north of the Northern Limit Line, the de facto inter-Korean maritime border.

North Korea wants that border redrawn farther south.

Over the past six decades, small-scale skirmishes have flared repeatedly along both land and sea borders as each state aims to reunify the peninsula according to its own terms and system of government. Deadly naval clashes occurred along the demarcation line in 1999, 2002 and 2009.

What is the history of conflict?

After Japan's defeat in World War II, Korea became a divided nation, the capitalist South supported by the United States and its Western allies and the communist North an ally of the Soviet Union.

Cold War tensions erupted into war 1950, devastating the peninsula and taking the lives of as many as 2 million people. The fighting ended with a truce, not a treaty, and settled little.

Technically the two Koreas are still at war.

Besides the border skirmishes, other incidents also have proven provocative. In 1968, North Korea dispatched commandos in an unsuccessful attempt to assassinate South Korea's president. In 1983, a bombing linked to Pyongyang killed 17 high-level South Korean officials on a visit to Myanmar. In 1987, the North was accused of bombing a South Korean airliner.

What happened with the Cheonan?

South Korea said a North Korean torpedo last March sent the warship Cheonan to the bottom of the Yellow Sea off the Seoul-controlled island of Baengnyeong. The sinking, also in the border area, killed 46 South Korean sailors.

South Korea was outraged by the incident. North Korea vehemently denied any responsibility, even after an international investigating team blamed North Korea. The United Nations Security Council statement condemned the attack but stopped short of placing blame on the North.

Will the two nations go to war?

South Korea put its military on high alert following Tuesday's exchange of fire. But whether that will translate into further military action is impossible to predict.

Events in the past few months suggested a slight thawing of icy relations.

North and South Korea had begun discussions on the possible resumption of reunions of family members separated by the Korean war and North Korea has requested military talks. In early September, the South offered food aid to the impoverished North for the first time in three years.

Given the closed nature of North Korean politics, it's hard to tell what changes the new leadership of Kim Jong Un will entail or whether re-engagement is on the table. Another wild card is the influence of China; some South Koreans fear a Chinese takeover in the event of a North Korean collapse.

Some analysts viewed Tuesday's exchange as North Korea flexing its military muscle in the light of its leadership transition. Others said it was related to the nuclear issue.

How will nuclear talks be affected?

Washington accuses Pyongyang of running a secret uranium-based nuclear program. The United States, along with the two Koreas, Russia, Japan and China, have been involved in what is called the Six Party Talks.

But those talks have been slow and arduous and in limbo since 2008. And after the revelation of the North Korean uranium enrichment facility a few days ago, the resumption of talks seemed in jeopardy.

Stephen Bosworth, the U.S. special envoy on North Korean denuclearization, said Tuesday's hostilities will prove a further obstacle.

Choi Jin-wook, senior researcher at the Korea Institute of National Unification, said the North is "frustrated with Washington's response to their uranium program and they think that Washington has almost given up on negotiations with North Korea."

"I think they realize they can't expect anything from Washington or Seoul for several months, so I think they made the provocation," Choi said."