Advantage Data: Market back on the slide after short respite as coal losses increase

By Paul Deckelman

New York, July 27 – The junk bond market turned decisively lower last week, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

It was a sharp reversal from the solid gains notched the week before, ended July 17.

Last week’s loss confirmed the market’s recent pattern of negativity, which has now seen junk bonds on the downside in three weeks out of the last four and in five weeks out of the last eight.

Since ending a long winning streak in early May, the market has been streaky over the last three months, alternating bursts of two or three weeks of consecutive gains with a roughly equal number of successive weekly losses.

With 29 weeks now in the books so far this year, last week’s loss was the 10th weekly retreat of the year so far, versus 19 weeks on the upside.

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 22 of those more sizable sectors closing in the red during the week ended Friday, with eight sectors finishing in the black.

That was in sharp contrast to the week before, when 26 sectors had posted gains and just four had shown losses.

Last week was more in line with the breakdowns seen during the weeks ended July 3 and July 10, when at least 20 of the sectors had finished in negative territory each week.

Among specific sectors, the depository financial institutions had the best weekly showing among those major groupings last week.

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

Not surprisingly, coal also stayed on the bottom as the worst year-to-date finisher among the big sectors for a 28th successive week. The lodging sector meanwhile remained on top year to date for a 21st week in a row.

Index heads south

Other statistical indicators of general junk market performance also ended the week lower on Friday versus where they had finished out the previous Friday, after having been mixed the week before. With two straight weeks before that during which they were lower across the board, the indicators have now been down all around in three weeks out of the last four.

Going back a little further, the indicators had been mixed for two successive weeks before that, which had followed two more straight weeks, and three weeks out of four, when the market measures had been on the downside. That slide was interrupted only by the universal upturn seen during the week ended May 29 – the last such weekly gain seen for the indicators.

The Merrill Lynch High Yield Master II index was lower last week, after having been higher the week before, ended July 17, an improvement which had followed three consecutive weekly downturns before that, making last week the fourth such lower week in the last five, and on a longer-term basis, its sixth weekly loss in the last eight weeks and seventh weekly loss in the last 10 weeks.

The index plunged by 1.01% – its biggest weekly loss so far this year – after having risen by 0.066% during the July 17 week.

The latest loss dropped its year-to-date return to 1.418% as of Friday, down from 2.452% the week before.

Last week saw the cumulative return fall below the psychologically significant 2.00% mark for the first time since mid-March, and Friday’s close was its lowest finish since Feb. 5, when it had gone home at 1.381%.

The index’s levels remained well down from 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 risen to 6.946% from 6.629% the Friday before. That set a new high point for the year, eclipsing the previous zenith of 6.86%, reached on Jan. 6, as well as its 2014 year-end level of 6.448%. Its low point for the year do far was 5.843%, seen on Feb. 27.

The index’s spread to worst over comparable Treasury issues shot up to 542 basis points from 509 bps the week before, stopping not too far below its wide point for the year so far of 550 bps seen on Jan. 5, while widening past the 513 bps seen on the last day of 2014. Its tightest level for this year has been the 451 bps recorded on March 2 and again on March 3.

Coal keeps crumbling

Back on a sector-by-sector basis, Advantage Data meanwhile showed the coal-mining sector as the worst-performing significantly sized sector for a fifth consecutive week, dropping 4.91%, on top of the 7.67% nosedive during the week ended July 17.

Coal has now been the absolute worst finisher in 12 weeks out of the last 13 and in 13 weeks out of the last 15, 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 15 weeks out of the last 17, and in 18 weeks out of the prior 21.

Other sectors showing sizable losses included oil and natural gas exploration and production (down 3.69%), metals mining (down 2.08%), primary metals processing (down 1.79%) and non-computer electronics manufacturing (down 1.03%)

Last week was the fifth consecutive week among the Bottom Five worst-performing sectors for the metals miners, who had also been there the previous week with a 0.45% downturn.

It was the sixth straight week that the oil and gas E&P operators ended among the worst losers, having also made it the week before with a 0.65% deficit that week.

After an absence of one week, the primary metals processors have now been among the Bottom Five in three weeks out of the last four.

Depository financials firmer

On the upside, depository financial institutions led all of the significantly-sized sectors with a 0.25% gain on the week.

They were followed by real estate (up 0.23%), insurance carriers (up 0.19%) and the building construction and the lodging sectors, both of which were up 0.17%.

It was the third straight week that the innkeepers finished among the Top Five best-performing large sectors, having also made it there the week before with a 1.40% gain – the most of any sector that week.

The insurance carriers, on the other hand, had been counted among the Bottom Five the week before, when the sector rose by a feeble 0.01%

YTD: Lodging still on top

On a year-to-date basis, the lodging sector – among the better performers on the week, as noted – was the best cumulative performer for a 21st consecutive week, with a 14.69% gain for the year so far.

The food stores grouping (up 7.76%) was in the runner-up spot for a 10th consecutive week and for an 11th week in the last 12.

Real estate – also one of the week’s better sectors, as noted – improved to a 6.13% cumulative return, good enough for third-best among the larger-sized sectors, even though it had not been among the year-to-date leaders the week before.

Holding companies and other investment offices (up 5.73%) thus fell by one position in the rankings, to just fourth-best on the year, after having held the third-place spot for the previous six weeks.

Depository financial institutions – the week’s best-performing sizable sector, as noted – moved up to fifth-best on the year with a 4.63% return, despite having not been among the leaders the week before.

Coal still buried

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 24.03%. It was coal’s 28th 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 third straight week with a cumulative loss of 3.39%.

Oil and gas E&Ps – another one of the week’s underachievers, as noted – fell to third-worst on the year with a 2.71% loss, despite having not been among the worst year-to-date performers the week before. However, it has now been among the year’s worst laggards for two weeks out of the last three.

Last week was the second straight week that as many as three key sectors were in the red for the year.

Oil and gas’ fall to third-worst on the year, in turn, gave two other sectors a relative boost.

The securities and commodities brokers, dealers and exchanges sector (up 0.67%) moved up to just fourth-worst for the year, after having been third-worst the previous two weeks.

And transportation equipment manufacturing (up 1.28%) was just fifth-worst on the year, after having been fourth-worst over the two previous weeks.

© 2015 Prospect News.
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