Morning Commentary: iQIYI convertible notes drop ‘like a stone’; markets await Fed

By Abigail W. Adams

Portland, Me., Dec. 14 – It was an active morning in the convertibles secondary space with one name dominating trading activity – iQIYI, Inc.

The Beijing-based online entertainment service provider’s 4% convertible notes due 2026 were “dropping like a stone” in heavy volume, a source said.

However, it was unclear what sparked the selling in the name.

The 4% notes fell 5 points outright with the yield brushing against 50%.

The notes were changing hands in the 52.5 to 53 context early in the session, a source said.

The yield was about 49%.

Reported trading volume in the name was $13 million.

The notes were previously trading at 58.

While iQIYI’s 4% notes plummeted, its 2% convertible notes due 2025 were relatively stable in active trading.

The 2% notes saw some early prints on an 80-handle but traded unchanged at 81.75 about one hour into the session.

The yield on the notes was 78.5%.

There was $6 million in reported volume.

iQIYI has long been a yield play with the 2% notes due 2025 putable on April 1, 2023 and the 4% convertible notes due 2026 putable on Aug. 1, 2024.

However, iQIYI’s equity was also taking a beating early Wednesday with its American Depositary Shares trading at $3.64, a decrease of 5.49%, shortly before 11 a.m. ET.

Outside of iQIYI, few names saw concentrated activity as markets await the Federal Open Market Committee’s rate hike decision and chair Jerome Powell’s press conference.

However, there was a wide range of names in play with $102 million in reported volume, a source said.

Equity indexes made nominal gains early Wednesday with volatility expected in the afternoon.

The Dow Jones industrial average was up 191 points, or 0.59%, the S&P 500 index was up 0.60%, the Nasdaq Composite index was up 0.56% and the Russell 2000 index was up 0.38% shortly before 11 a.m. ET.

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