Advantage Data: Junk market sectors lower for second straight week as coal slide continues

By Paul Deckelman

New York, March 16 – With the volatile coal-mining sector continuing its freefall, the overall junk market was lower for a second consecutive week last week, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Those two down weeks, in turn, had followed six consecutive weeks of gains before that.

Last week’s downturn was only the third recorded so far this year, against seven weeks of upside. Before the past two weeks, the only losing week had been during the week ended Jan. 16 – and before that had been four more consecutive weeks of improvements, dating back to mid-December of last year.

A subset of the 30 most significantly sized sectors (out of the total of 58 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe), as measured by the number of bond issuers, the collective number of issues tracked and their total face amount outstanding, showed 23 of those more sizable sectors closing in the red during the week ended Friday, with seven sectors ending in the black.

That was a substantial deterioration from the previous week, ended March 6, which had seen 16 of those larger sectors posting losses on the week, versus 12 sectors recording gains and two others unchanged, with neither a gain nor a loss.

And it was a virtually complete reversal of the week before that, ended Feb. 27, during which fully 28 of those larger sectors had finished in positive territory, with only two sectors in negative territory.

In the latest week, coal was the biggest loser among all of the significantly sized sectors for a second consecutive week, as well as having the worst year-to-date performance for a ninth straight week.

On the upside, the lodging sector was both the week’s best major-sector performer and also had the best year-to-date return so far for a second week in a row.

Index slide continues

Other statistical indicators of general market performance, meanwhile, were lower across the board last week versus where they had finished out the previous week for a second successive week, after having seen four straight weeks of better returns before that and five upside weeks out of the previous six, interrupted only by one mixed week.

They were led downward again by the Merrill Lynch High Yield Master II index, which fell for a second week in a row after a solid six straight weeks of progress, including at one point a now-ended winning streak of 31 consecutive daily gains that had dated all the way back mid-January.

On the week, it fell by 0.551% as of Friday’s close, versus the previous week’s 0.412% retreat.

It was the third weekly loss of the year so far against seven weekly gains. The sole previous loss had been the 0.297% setback suffered during the week ended Jan. 16, which in turn had snapped a winning streak of four consecutive better weeks before that, dating back to mid-December.

The index’s year-to-date return so far as of Friday had fallen to 2.046% from 2.611% at the end of the previous week. It was down as well from its peak level for the year so far of 3.125%, set on March 2.

The index had finished 2014 returning 2.503%.

Among its other components, Friday’s yield to worst stood at 6.219%, up from 6.046% the previous Friday and up as well from 5.843% the Friday before that, its low for the year. However, the yield still did remain below its 2014 year-end 6.448% level.

Its spread to worst over comparable Treasury issues stood at 480 basis points, wider than the previous Friday’s 454 bps as well as the 451 bps recorded on March 2 and again on March 3, its tightest spread for the year so far. But it was still in from the 513 bps reading seen on the last day of 2014.

Coal collapse continues

Back on a sector-by-sector basis, Advantage Data meanwhile showed the coal mining sector posting the worst performance by any of the significantly sized sectors for a second consecutive week, plunging by 3.22%, on top of the previous week’s 1.83% nosedive.

Coal’s swoon over the last two weeks was in sharp contrast to the robust 1.46% return that the volatile sector had put up during the week, ended Feb. 27, and has contrasted even more starkly with its performance in the three weeks before that – during the weeks ended Feb. 6, Feb. 13 and Feb. 20, when the miners were the absolute best finishers in each of those weeks, especially Feb. 6, when coal had been red-hot with a sizzling 3.59% weekly return.

But those four weeks of strong gains were the exception rather to the rule; coal’s return to the Dark Side these past two weeks was more in line with the sector’s performance before that atypical lurch upward, which in turn, had snapped a streak of three straight weeks, ended Jan. 16, Jan. 23 and Jan. 30, during which it had been the cellar-dweller among all of the large-sized sectors. And that had been part of an 11-week skid, dating back to late November, during which coal – which was the worst-performing large sector in both 2013 and 2014 – had been among the worst-finishing sectors in each of those weeks.

Other sectors showing notable losses last week included oil and natural gas exploration and production (down 2.16%), metals mining (down 1.45%), primary metals processing (down 0.90%) and telecommunications (down 0.63%).

As was the case with coal, it was the second straight week among the worst performers for the oil and gas sector, which had also been among the big losers the previous week with a 0.58% deficit. Metals mining, on the other hand, had been the previous week’s single best-performing large-sized sector, with a 0.51% gain – its third week out of the previous four among the elite sectors – but it has now returned to the Bottom Five list of worst finishers for a second week out of the last three.

Lodging leads the way

On the upside, lodging (up 1.03%) was last week’s best-performing major-sized sector. It was the only such sector posting what could be considered a sizable gain.

Other large-sized sectors showing strength on a relative basis this past week included food stores (up 0.29%), real estate (up 0.14%), holding companies and other investment offices (up 0.09%) and building construction and depository financial institutions sectors, both of which were up by 0.05%.

It was the second straight week in the select circle for real estate and the holding companies, which had made the Top Five list of best performers the week before with returns of 0.21% and 0.24%, respectively.

Lodging on top year to date

On a year-to-date basis, with 10 weeks in the books, the lodging sector (up 6.52%) was the best cumulative performer for a second consecutive week; during the week ended March 6, the hoteliers had reclaimed the top spot in the standings, which they had held for three straight weeks in January, only to surrender that lofty perch to the food stores sector and then play second fiddle to them for the next four weeks after that.

Petroleum refining (up 4.35%) was in the runner-up spot for a second successive week.

Food stores (up 4.09%), which, as noted, had been the best-performing year-to-date sector for four weeks before lodging took back that honor during the March 6 week, moved back up in the rankings by two notches last week, to third-best from just fifth-best the week before, when it had been resoundingly deposed from the top spot by lodging.

Electric and gas utilities (up 3.23%), were fourth-best so far this year for a second straight week and for a third week in the last four and a fifth week in the last seven.

Precision equipment manufacturing (up 3.07%) moved up to the Number-Five spot, despite having not been among the year-to-date leaders the week before.

On the downside, coal mining’s recent return to its more customary role as worst weekly performer after an atypically strong four weeks before that has cemented its position so far as worst finisher year to date. Last week was its ninth straight week at the bottom of the pile, with a 3.46% cumulative loss. Coal was the only large-sized sector in the red for the year-to-date last week.

Transportation equipment manufacturing (up 0.42%) fell one notch to second-worst, from just third-worst the week before. But the sector has now been the second-worst cumulative performer in two weeks out of the last three.

Wholesale durable goods distributors (up 0.73%) likewise lost one position, declining to third-worst on the year from fourth-worst the previous week.

Oil and natural gas E&P (up 0.76%) – one of the week’s worst-performing sectors, as noted – fell to fourth-worst on the year due to that weekly slide, despite having not been among the worst year-to-date finishers the week before.

Chemical manufacturing (up 1.38%) fell to fifth-worst on the year, despite also having not been among the worst underperformers the week before.

© 2015 Prospect News.
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