This is what is driving Asia lower.


Feb. 11 (Bloomberg) -- Woori Bank, South Korea’s second- biggest, won’t exercise an option to redeem $400 million of subordinated bonds as it would be more expensive to refinance the debt than to pay penalty interest.
The Seoul-based bank won’t call the notes due to "current adverse market conditions," it said today in an e-mailed statement, without elaborating. Credit-default swaps on Woori’s subordinated debt jumped 100 basis points to 830 after rising 25 basis points before the announcement, BNP Paribas SA prices show.
"Their decision just destroyed the trust and confidence investors have," said Arthur Lau, a fund manager in Hong Kong with JF Asset Management Ltd., which oversees $128 billion.
"South Korean banks will be struck off from the international capital market for quite some time because of this."
Deutsche Bank AG in December took bondholders by surprise when it passed up a chance to redeem 1 billion euros ($1.3
billion) of notes, paying a penalty rate instead of refinancing the debt at a higher cost. Spain’s Banco Sabadell SA followed suit for its 300 million euro lower-Tier 2 notes on Feb. 4, roiling investors who expect borrowers to repay callable debt at the first opportunity and who value the securities on that basis.
Woori "is considering various liability management alternatives," it said in today’s statement. Bank spokesman Kim Ki Rin said he couldn’t comment further, and Kim Jong Geun, executive vice president in charge of the treasury department, couldn’t be reached for comment.
Domino Effect
Woori’s decision "may trigger a domino effect on Asian banks’ subordinated debt," said Brayan Lai, a credit analyst with Calyon in Hong Kong. "The problem is, it doesn’t make sense economically for Woori to call the bonds in the current market conditions, even after taking into account the step-up cost they would need to pay not to exercise the call."
The bank will need to pay coupon that’s 406.5 basis points more than five-year U.S. government debt after March 13 for the lower Tier-2 notes, data compiled by Bloomberg show. Five-year U.S. Treasuries today yielded 1.79 percent.
The price of its $400 million notes maturing in 2014 plunged to a record low of 79.5 cents on the dollar to give a
12.73 percent yield, compared with 89.5 cents before the announcement, Royal Bank of Scotland Group Plc data show.
Rival Shinhan Bank’s $200 million of 4.5 percent subordinated notes fell to a record 80 cents on the dollar, yielding 9.8 percent compared with 7.9 percent yesterday, RBS prices show.
Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.
A basis point, or 0.01 percentage point, is worth $1,000 on a swap protecting $10 million of debt.
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The Deutsche Bank and Banco Sabadell SA decisions got relatively little airplay but 3 strikes and you have a trend maybe the thought process at work.

Real result/interpretation of these actions:

1. The bonds get hit and holders mark them down, more pain alround.
2. The market is still overpricing corporate debt. (The perceived yield on a bank or corporate's existing bonds is still not the rate it could finance at in the market.) These banks actions are tantamount to them saying that they do not agree with the way the market is pricing their debt!!!!!!!!!!!!!!!!!!!!!
3. In turn it makes the equity look more expensive.

Checking now to see what percentage of debt have these "step up to perpetuity" maturity clauses. I know I am an equity guy but perpetuity?? what were buyers thinking?? Stay tuned.