Advantage Data: Junk market roars back, although coal woes continue; lodging leads upside

By Paul Deckelman

New York, July 20 – The junk bond market turned decisively higher last week, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News by Advantage Data Inc.

It snapped a two week losing streak, posting its third upside week in the last five weeks.

Before last week’s big win, the market had been down over four weeks of the last six.

Showing high yield’s recently streaky nature, the now-ended two-week slump had followed a two-week advance – which in turn had followed a two-week skid, which itself followed a three-week upturn.

That improvement had come after another two-week downturn, and that setback, in turn, had halted a six-week winning streak dating back to mid-March.

With 28 weeks now in the books so far this year, last week’s gain was the 19th weekly advance of the year so far, versus nine weeks on the downside.

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 26 of those more sizable sectors closing in the black during the week ended Friday, with just four sectors finishing in the red.

That was in sharp contrast to the prior two weeks, with 20 sectors posting losses and 10 showing gains during the week ended July 10 – not much changed from the previous week, ended July 3, when 22 sectors ended in negative territory, seven were on the plus side and one other sector was unchanged, showing neither a gain nor a loss.

Among specific sectors, the lodging providers had the best weekly showing among those major groupings.

On the downside, coal mining remained in its customary position as the biggest loser among the largest sectors for a fourth consecutive week.

Not surprisingly, coal also stayed on the bottom as the worst year-to-date finisher among the big sectors for a 27th successive week, while lodging remained on top year to-date for a 20th week in a row.

Index turns higher

Other statistical indicators of general junk market performance ended the week mixed on Friday versus where they had finished out the previous Friday, after having been lower across the board for two consecutive weeks. The indicators had been mixed for two successive weeks before that.

Going back a little further, those two mixed weeks had followed two more straight weeks, and three weeks out of four, when the market measures had been lower all around – a slide interrupted only by the universal upturn seen during the week ended May 29, the most recent such weekly gain for the indicators.

The Merrill Lynch High Yield Master II index last week posted its first upside week after three consecutive weekly downturns before that. Before last week, it had also been lower in five weeks out of the prior six and in six weeks out of the previous eight.

The index rose by 0.066% on the week, after having been down by 0.379% during the week ended July 10.

It had also lost 0.124% during the week ended July 3 and had declined by 0.248% the week before that, ended June 26.

The latest gain raised its year-to-date return to 2.452% as of Friday, from 2.385% the previous Friday. Those levels, in turn, remained well 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 eased to 6.629% from 6.67% 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, although it continued to top its 2014 year-end 6.448% level.

Its spread to worst over comparable Treasury issues widened marginally to 509 basis points from the previous week’s 508 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 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.

Lodging leads the way

Back on a sector-by-sector basis, Advantage Data meanwhile showed the lodging sector leading all of the significantly sized sectors with a 1.40% gain on the week.

It was the second straight week that the innkeepers finished among the Top Five best-performing large sectors, having also made it there the week before with a 0.33% gain.

Also showing strength during the most recent week were amusement and recreational services (up 0.92%), telecommunications (up 0.83%), health care (up 0.76%) and securities and commodities brokers, dealers and exchanges (up 0.60%).

It was the second straight week among the big winners for health care, which had also been there the previous week with a 0.47% gain.

Coal carnage continues

On the downside, the coal mining sector was on familiar ground for a fourth straight week, posting the worst loss among any of the sectors, with a 7.67% decline on the week.

It had also been buried at the absolute bottom of the mineshaft after plunging 5.93% during the week ended July 10, on top of losses of 3.91% in the week ended July 3 and 3.53% during the week ended June 26.

Those four most recent weeks have stood in contrast with the week ended June 19, when coal’s 0.83% gain was the best among the large sectors – and that unusual show of strength had followed seven straight weeks during which it had been the absolute worst finisher, culminating with a 5.99% plunge for the week ended June 12.

The volatile sector thus went from worst to first in the week ended June 19, only to reverse during the week ended June 26 and travel from first back to worst.

It has now been the absolute worst finisher in 11 weeks out of the last 12 and in 12 weeks out of the last 14, as well as having been among the Bottom Five worst-performing large sectors for a given week – sometimes as the absolute worst, other times not – in 14 weeks out of the last 15, and in 16 weeks out of the prior 19.

Other sectors showing losses included oil and natural gas exploration and production (down 0.65%), metals mining (down 0.45%) and transportation equipment manufacturing (down 0.03%).

Those four sectors were the only industry groupings actually finishing in the red on the week.

The latest week’s Bottom Five list of the worst-performing major sectors was rounded out last week by the insurance carriers (up 0.01%).

Last week was the fourth consecutive week among the Bottom Five for the metals miners, which had also been there the previous week with a 4.45% slide, second only to coal that week as the worst finish on the week.

It was the fifth straight week that the oil and gas E&P operators ended among the worst losers, having also made it the week before with a 0.84% deficit that week.

YTD: Lodging still leads

On a year-to-date basis, the lodging sector – the week’s best performer, as noted – was the best cumulative performer for a 20th consecutive week, with a 15.21% gain for the year so far.

The food stores grouping (up 8.03%) was in the runner-up spot for a ninth consecutive week and for a 10th week in the last 11.

Holding companies and other investment offices (up 5.12%) were third-best on the year so far for a sixth week in a row.

Petroleum refining (up 4.93%) moved up one notch in the rankings to fourth-best on the year from fifth-best the week before; the refiners have now held down the Number-Four slot in three weeks out of the last four.

Miscellaneous retailing (up 4.35%) was fifth-strongest on the year despite having not been among the cumulative leaders the week before. However, the sector has now been fifth-best in two weeks out of the last three and in three weeks out of the last four.

Coal stays in the cellar

On the downside, coal mining – clearly the week’s worst performer for yet another week, as noted – continued to do ever-worse on a year-to-date basis as well, showing a 2015 loss so far of 23.80%. It was coal’s 27th straight week at the bottom of the pile.

The metals mining sector – like coal one of the worst-performing sectors on the week, as noted – was second-worse on the year for a second straight week with a cumulative loss of 2.67%.

The securities and commodities brokers, dealers and exchanges sector (down 0.25%) was third-worst for a second straight week; before that, it had been the second-worst major sector for three straight weeks, as well as for 10 weeks out of the previous 12 to that point.

Last week was the first time since the week ended April 3 that as many as three key sectors were in the red for the year.

Transportation equipment manufacturing (up 1.15%) was fourth-worst on the year for a second straight week. Before that, the sector had been the third-worst for three straight weeks, for five weeks out of the previous six to that point and in seven weeks out of the prior nine.

Paper manufacturing (up 1.62%) fell to fifth-worst on the year, despite having not been among the major-sector underachievers the week before.

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