Advantage Data: Lodging helps extend junk market, key sector rebound

By Paul Deckelman

New York, Dec. 29 – The junk market moved higher for a second consecutive week as it continued to recover from its recent two-week losing streak, according to sector-tabulated weekly bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Before that upturn, the overall market had also been lower in four of the previous five weeks.

Out of the 58 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 52 finished in the black during the week ended Friday, with just six closing in the red.

That represented a clear strengthening from the week before, ended Dec. 19, when 32 of the sectors had shown gains and 26 losses.

While not an overwhelmingly positive surge, that previous week had still represented a clear comeback from the week before, ended Dec. 12, when 57 of the sectors had shown losses, with only one posting a gain.

A majority of the sectors have now been on the plus side in 37 weeks out of the 52 so far this year, versus 15 weeks in which more sectors were down than up, although the negative weeks have been more numerous over the course of the last few months. At one point earlier in the year, from mid-March to early July, there had been a streak of 16 consecutive upside weeks.

A subset of just the 30 most significantly sized sectors, as measured by the number of bond issuers, the collective number of issues tracked and their total face amount outstanding, also strongly extended its recovery this past week along with the broader market, rising for a second week after having plunged for two straight weeks before that.

Some 28 of those more substantial sectors closed in the black this past week, with only two sectors in the red, versus the week before, when 18 of the sectors had shown gains and 12 posted losses. During the week ended Dec. 12, a total of 29 of those larger sectors had ended in negative territory, with just one positive.

That more-focused grouping generally moves up or down in tandem with the overall market, although from time to time there is a rare divergence, as happened during the week ended Nov. 14, when a small majority of the larger sectors finished higher on the week, even though the overall sector breakdown was negative, and before that, during the week ended March 7, when most of those key sectors were down on the week while the overall sector roster showed more gains than losses. Other than those two points, the results had mirrored those of the broader market.

Thus, on a year-to-date basis, those significantly-sized sectors have now mostly shown gains in 37 weeks out of 52 since the start of the year, versus 15 downturns, the same as the broader market.

In the latest week, the recently struggling lodging sector decisively led the market higher, helped out by the oil and natural gas exploration and production sector, which posted its second big weekly gain in a row, partially reversing its huge nosedive seen the week before that upturn began.

Bonds of coal-mining companies were – again – the biggest losers this past week among those key sectors.

For the year-to-date, real estate companies moved into the lead, while coal mining continued as the year-to-date cellar-dweller.

Index continues comeback

Other statistical indicators of general market performance meanwhile were higher across the board this past week versus where they had finished out the week before, their second straight week of improvement all around after having spent the two previous weeks on the downside.

The Merrill Lynch High Yield Master II Index led the way upward, firming by 0.48%. That followed the 1.055% jump during the week ended Dec. 19 – one of the largest weekly gains seen so far this year, only slightly less than the 1.057% surge seen during the week ended Aug. 15.

During the week ended Dec. 12, the index had swooned by 2.094% on the week – its largest weekly decline so far this year this year, eclipsing the 1.419% plunge recorded during the week ended Aug. 1, and one of the biggest weekly downturns on record.

The index has now seen 35 weekly gains in 2014, against 17 losses, including a winning streak of 14 straight weekly advances that started during the week ended March 21 but which was snapped during the week ended June 27.

As of Friday, its year-to-date return had risen to 2.40% from 1.911% the previous week, although it remained well down from its peak level for the year of 5.847%, posted on Sept. 1. It was well above its low point for the year, the 0.258% cumulative loss recorded on Dec. 16

Among the index’s other components, Friday’s yield to worst stood at 6.618%, down from 6.778% the week before and down as well from its high point for the year of 7.259%, set on Dec. 16. All of those elevated yields stood in contrast to the 4.847% notched on June 24, which was both its low point for this year and its all-time low.

Its spread to worst over comparable Treasury issues stood at 504 basis points on Friday, having come in from 531 bps the week before and from 576 bps on Dec. 16, its widest level for the year. But it remained well up from the 353 bps seen on June 23, its tightest spread year to date.

Lodging leads the way

Back on a sector-by-sector basis, Advantage Data meanwhile showed the lodging sector with a gain of 1.54% doing the best among any significantly-sized sector.

That represented a substantial rebound from the week before, when the grouping had lost 0.34% while finishing among the worst performers for a second consecutive week.

The oil and gas E&P sector gained 1.17%, the oilers’ second big weekly gain in a row. During the week ended Dec. 19, the energy names had been the dominant large sector with a 1.66% week – thus managing the relatively unusual feat of having gone from worst to first. The week before that, ended Dec. 12, energy had clearly been the absolute worst-performing large sector, having nosedived by 5.25% – the group’s seventh consecutive week among the worst finishers and the second time in three weeks that it had the biggest loss.

Also showing strength this past week were petroleum refining (up 0.84%), automotive services (up 0.80%) and building construction (up 0.78%) The latter sector had been among the Bottom Five worst performers the week before, when it lost 0.22%.

On the downside, coal mining was among the losers for a sixth straight week with a 0.27% loss, the worst of any major sector.

It had also been there the week before with a 0.46% downturn.

Food stores (down 0.09%) was the only other significantly-sized sector posting a loss in the latest week. It had actually been among the Top Five best-performing sectors the previous week with a 0.78% gain.

The latest week’s Bottom Five list was rounded out by sectors that merely performed poorly relative to their peers. These included holding companies and other investment offices as well as electric and gas utilities, which were both up by 0.09%. Metals mining rose by 0.16%.

Both the metals miners and the holding companies sectors had been part of the Bottom Five the week before, with losses of 1.11% – the worst of any of the major sectors – and 0.52%, respectively.

Real estate leads year-to-date

With 52 weeks in the books for 2014, the real estate sector moved into the top spot on a year-to-date basis with a cumulative return of 8.91%, rising two positions from its previous third-place status.

Paper manufacturing (up 8.83%) was in the runner-up slot for a second consecutive week, after having been the cumulative champ for three straight weeks before that, for nine weeks out of the prior 10 and for 12 weeks out of the previous 15.

Printing and publishing (up 7.70%) moved up one notch to third best from fourth previously. It was its second third-place finish in the past three weeks.

Healthcare (up 7.27%) also rose by one position, to fourth best from fifth place before that.

Depository financial institutions (up 6.79%) improved to fifth best, despite having not been among the year-to-date leaders the week before.

Coal still crushed

On the downside, coal mining (down 8.20%) was the worst cumulative performer for a fourth straight week.

Coal has been the year-to-date bottom-finisher for most of 2014, at one point having the worst cumulative return for 23 consecutive weeks and 27 weeks out of 28, until that skid was broken by the lodging sector during the week ended Aug. 15.

In the 19 weeks since then, the two sectors have alternated, with coal down at the very bottom for 10 of those weeks and lodging holding that unwanted honor for the other nine weeks.

Metals mining (down 6.07%) fell by one notch to second worst from just third worst the week before, its second week in the last three in that second-worst slot.

It thus switched places with lodging (down 3.34%), which had been second worst in two weeks out of the previous three and nine weeks out of the previous 19.

Oil and gas E&P (down 1.52%) was fourth worst for an eighth consecutive week.

Holding companies and other investment offices (up 0.65% on the year) was the fifth-worst major sector for a fourth straight week.

© 2015 Prospect News.
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