Advantage Data: Coal comeback leads market turnaround, breaking two-week skid; energy credits off

By Paul Deckelman

New York, June 22 – The junk bond market bounced back last week – though narrowly – after two consecutive weeks on the downside, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Showing high yield’s recently streaky nature, that now-ended two-week slump followed a three-week upturn, which had come after a two-week skid. That setback, in turn, had halted a six-week winning streak dating back to mid-March.

With 24 weeks now in the books so far this year, last week’s narrow gain marked 17 weeks on the upside recorded this year, versus seven weekly retreats.

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 16 of those more sizable sectors closing in the black during the week ended Friday, with 14 sectors ending in the red.

In contrast, the week before, ended June 12, had seen fully 27 of those more sizable sectors closing in negative territory, with only three sectors finishing in the black – only slightly changed from the week before that, ended June 5, when the overwhelmingly negative breakdown had stood at 28-to-2.

Those two weeks, in turn, had represented a sharp reversal from the trend seen the week before that, ended May 29 – the most recent previous week on the upside – when 25 sectors had shown gains, four had suffered losses and one sector was unchanged on the week, showing neither a gain nor a loss.

Among specific sectors, recently beleaguered coal mining put on a rare show of strength, going from worst to first – it finished with the largest gain among any of the significantly sized sectors, after having had the biggest losses for seven successive weeks before that.

That left the oil and natural gas exploration and production sector to fill coal’s usual role as the worst weekly performer.

Despite its stellar weekly performance, coal remained the worst year-to-date finisher among the big sectors for a 23rd successive week, while the lodging sector remained on top year to date for a 16th week in a row.

Index on the rebound

Other statistical indicators of general junk market performance ended mixed last week versus where they had finished out the previous Friday, after having been lower across the board for two straight weeks before that and in three weeks out of the previous four, a slide interrupted only by the upturn all around during the week ended May 29.

The Merrill Lynch High Yield Master II index broke out of its recent slump after two straight weeks of retreats and three negative weeks in the previous four.

The index rose by 0.062% on the week, after having eased by 0.193% the week before and having slid by 0.739% in the week ended June 5. It had gained 0.159% the week before that.

The latest gain raised its year-to-date return to 3.157% as of Friday, up from 3.093% the week before. Those levels, in turn, remained below the 4.062% at which it had ended on May 29, its peak level for the year so far.

The index had finished 2014 returning 2.503%.

Among its other components, Friday’s yield to worst had declined to 6.297% from 6.337% the Friday before. While it remained above the 5.843% seen on Feb. 27, its low for the year, the yield was still down from its 2015 peak of 6.86%, reached on Jan. 6 and its 2014 year-end 6.448% level.

Its spread to worst over comparable Treasury issues widened to 482 basis points from the previous week’s 474 bps. It was wider than the 451 bps recorded on March 2 and again on March 3, its tightest spreads for the year so far, but it was still well in from the 550 bps seen on Jan. 5, the widest 2015 reading, as well as the 513 bps seen on the last day of 2014.

Coal suddenly hot

Back on a sector-by-sector basis, Advantage Data meanwhile showed the recently badly battered coal sector making a rare show of strength to emerge as the best performer among the significantly sized groupings, rising by 0.83%.

The volatile sector thus accomplished the uncommon feat of going from worst to first, after having had the biggest loss of any major sector during the week ended June 12, when it had plunged by 5.99% on the week.

That previous loss had marked coal’s seventh straight week with the single worst result of any of those key sectors, a skid dating back to the week ended May 1.

As of that previous week, coal had also been the worst large-sized performer in eight weeks out of the prior nine, having also had that dubious honor during the week ended April 17, when it had dropped by 1.30%.

That losing streak was only interrupted during the week ended April 24 – its most recent previous week on the upside – when, just as it did last week, coal had once again surged strongly and led all of the key sectors with a 2.19% return.

As of the week ended June 12, coal had also been among the Bottom Five worst large-sized performers – sometimes the absolute worst, other times not – in 10 weeks out of the previous 11, and in 13 weeks out of the prior 15.

Other sectors showing strength last week included industrial machinery and computer equipment manufacturing (up 0.69%), automotive services (up 0.40%), non-depository credit institutions (up 0.28%) and building construction (up 0.27%).

Like coal, the machinery and computer manufacturers and the automotive services sectors had each been among the previous week’s Bottom Five worst-performing large sectors, with losses of 0.37% and 0.65%, respectively.

Oil and gas lead the losers

On the downside, the oil and natural gas E&P sector filled the vacuum left by coal mining’s sudden surge, with the energy credits turning in the worst performance of any of the large-sized sectors last week with a 0.57% loss.

Also showing weakness were wholesale durable goods distributors (down 0.51%), paper manufacturing (down 0.33%), petroleum refining (down 0.20%) and the food stores and telecommunications sectors, both of which lost 0.19% on the week.

The durable goods distributors had also been among the Bottom Five the week before, with a 0.37% loss.

However, the refiners had been among the Top Five best-performing significant sectors during the mostly negative week ended June 12, with a loss of 0.01%, far less of a loss than almost all the other sectors.

YTD: Lodging again on top

On a year-to-date basis, the lodging sector (up 13.49%) was the best cumulative performer for a 16th consecutive week.

The food stores grouping (up 8.07%) was in the runner-up spot for a fifth consecutive week and for a sixth week in the last seven.

Holding companies and other investment offices (up 5.99%) were third-best on the year so far for a second week in a row.

Miscellaneous retailing (up 4.28%) moved up one notch in the rankings, to fourth-strongest on the year, after having been fifth-best over the previous two weeks.

Real estate (up 3.93%) moved up to take over the Number-Five slot vacated by the retailers, despite having not been among the year-to-date leaders the week before.

Coal struggles YTD

On the downside, coal mining – despite having been the week’s best finisher, as noted – remained the worst year to date for a 23rd straight week, with a loss of 15.55%. As has been the case for a number of weeks, it was the only significantly sized sector finishing in the red on a cumulative basis.

For a second week in a row, the securities and commodities brokers, dealers and exchanges sector and the transportation equipment manufacturing sector traded places in the standings for worst-performing major sectors for the year so far.

The brokers, dealers and exchanges sector (up 0.29%) fell by one position, to second-worst on the year, after having been third-worst the week before, while transportation equipment makers (up 0.92%) improved, relatively speaking, as they rose by one slot to just third-worst on the year from second-worst the week before.

But that move marked a homecoming for both sectors after having been dislodged from familiar positions the week before; the brokers, dealers and exchanges have now been second-worst in eight weeks out of the last 10, having been down there for five consecutive weeks at one point.

Meanwhile, the transportation equipment makers have now been the third-worst major sector on the year in three weeks out of the last four and in five weeks out of the last seven.

Paper manufacturing (up 1.60%) also returned to familiar territory this past week, falling by one notch to fourth-worst on the year from just fifth-worst the week before; the papermakers have now been fourth-worst in two weeks out of the last three.

Wholesale durable goods distributors (up 2.12%) tumbled to fifth-worst on the year, despite having not been among the worst laggards the week before.

© 2015 Prospect News.
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