Advantage Data: Recently choppy market rebounds as coal, oil and gas show atypical strength

By Paul Deckelman

New York, Aug. 3 – The junk bond market turned solidly higher last week, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

That gain stood in marked contrast to the decisively lower finish seen the week before, ended July 24.

Showing the recent choppiness seen in Junkbondland, that lower finish had been a sharp reversal from the robust gains notched the week before, ended July 17 – which in turn had followed a downside performance in the week ended July 10, its third straight such downturn.

Junk bonds have now been up in two weeks out of the last three and in four weeks over the past seven.

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.

On a somewhat longer-term basis, with 30 weeks now in the books so far this year, last week’s gain was the 20th weekly advance seen during that time, versus 10 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 25 of those more sizable sectors closing in the black during the week ended Friday, with only four sectors finishing in the red and one other ending the week unchanged, showing neither a gain nor a loss.

That was in sharp contrast to the week before, when 22 sectors had posted losses and just eight had shown gains.

Among specific sectors, the coal mining sector, usually the worst-performer of all, broke out of that rut for the first time in six weeks, showing unusual strength and actually leading all of the major sectors.

That left building construction to take over coal’s usual role as the week’s worst performer.

But coal’s strong showing for the week could not keep it from repeating as easily the worst-performing sector on a year-to-date basis, its 29th consecutive week as the year-to-date cellar-dweller.

The lodging sector meantime continued to hold sway as the best year-to-date performer among the major sectors for a 22nd straight week.

Volatile index heads north

Other statistical indicators of general junk market performance ended the week higher across the board for the first time since the week ended May 29; the two months since then had seen those indicators closing either down all around for the week, as they had been during the week ended July 24 for a third time in the previous four weeks, or, at best, mixed, each alternating for a week or two.

The struggling Merrill Lynch High Yield Master II index had a volatile week, starting out continuing a recent slump and running up to seven consecutive daily losses. It hit its worst levels for the year in several index categories, before strongly pulling out of that skid and ending the week better.

Before that upturn, the widely followed index had been down in four weeks out of the previous five and, on a longer-term basis, in seven weeks out of the prior 10.

The index gained 0.439% on the week – in sharp contrast to its 1.01% plunge during the July 24 week, its biggest weekly loss of the year.

The weekly gain – its 19th since the start of the year, versus 11 downturns – lifted its year-to-date return to 1.863% as of Friday from 1.418% the week before, when the index’s cumulative return had fallen below the psychologically significant 2.00% mark for the first time since mid-March.

Even with that solid comeback later in the week, the year-to-date return 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 declined to 6.912% from 6.946% the Friday before. Last Monday, the yield had briefly moved above 7.00% for the first time this year, ending the session at 7.076%, a new high for the year, eclipsing the previous zenith set the preceding Friday. Its low point for the year so far has been 5.843%, seen on Feb. 27. The yield had ended 2014 at 6.448%.

The index’s spread to worst over comparable Treasury issues shot up to a new wide point for the year of 558 basis points last Monday from 542 bps the preceding Friday, surpassing the previous wide level for this year of 550 bps, seen on Jan. 5. But as the index recovered later in the week, the yield narrowed somewhat, to 545 bps on Friday.

The spread to worst on the last day of 2014 had stood at 513 bps, and it had tightened to its narrowest point this year of 451 bps on March 2 and again on March 3.

Coal comes out ahead

Back on a sector-by-sector basis, Advantage Data meanwhile showed coal mining in the unaccustomed position of the best-performing significantly sized sector, returning 0.86% on the week.

Coal thus accomplished the relatively uncommon feat of traveling from worst to first – during the week ended July 24, it had been the single worst-performing large grouping, nosediving by 4.91%, on top of an even greater plunge of 7.67% during the week ended July 17.

All told, before last week, coal had been the worst-performing large-sized sector for five straight weeks, and had held that unenviable distinction in 12 weeks out of the prior 13 – a losing streak interrupted only by a similar worst-to-first journey during the week ended June 19.

Coal had also been among the Bottom Five worst-performing large sectors for a given week – sometimes as the absolute worst finisher, other times not – in 15 weeks out of the previous 17, and in 18 weeks out of the prior 21.

Other large-sized sectors showing strength this week included telecommunications (up 0.84%), oil and natural gas exploration and production (up 0.65%), health care (up 0.60%) and food stores (up 0.57%).

While telecom and health care had not been among the weekly leaders the week before, telecom has now been among the Top Five best finishers in two weeks out of the past three, while health care has been there in three weeks out of the last four.

Like coal, oil and gas has most recently been seen more often among the worst performers than the best; before last week, it had been among the Bottom Five for six consecutive weeks, most recently the July 24 week, when it had lost 3.69%.

Building, paper the worst

With both coal and oil on a rare hiatus from being among the worst weekly performers last week, building construction (down 0.13%) had the unwanted honor of being the week’s worst performing large-sized sector. It had actually been among the Top Five the week before that with a 0.17% gain.

Other key sectors showing losses were paper manufacturing (down 0.11%) and the electric and gas utilities and industrial machinery and computer manufacturing sectors (both down 0.01%).

Rounding out last week’s Bottom Five was lodging, which as unchanged on the week at 0.00%, indicating neither a gain nor a loss. Previously, it had been in the Top Five for three straight weeks, posting a 0.17% gain in the week ended July 24.

YTD: Lodging still on top

On a year-to-date basis, the lodging sector – even though it was among the more anemic performers on the week, as noted – was the best cumulative performer for a 22nd consecutive week, with a 20.17% gain for the year so far.

The food stores grouping (up 8.60%) was in the runner-up spot for an 11th consecutive week and for a 12th week in the last 13.

Holding companies and other investment offices (up 5.50%) moved up by one position in the rankings, to its familiar third-place slot after one week as just fourth-best on the year. It has now held the third-place spot seven weeks out of the last eight.

Insurance carriers improved to fourth-strongest on the year with a 4.52% return, despite having not been among the leaders the week before.

Depository financial institutions (up 4.45%) stayed on as fifth-best on the year for a second consecutive week.

Coal still buried

On the downside, coal mining – despite having been the week’s best performer, as noted – continued to languish at the bottom of the pile as the worst year-to-date performer for a 29th straight week, showing a 23.55% year-to-date loss.

The metals mining sector was second-worse on the year for a fourth straight week with a cumulative loss of 4.78%.

Oil and gas E&Ps – which joined coal in a rare trip to the week’s Top Five, as noted – were third-worst on the year for a second straight week, with a 2.02% return, and have now been among the year’s worst laggards for three weeks out of the last four.

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

Paper manufacturing – one of the week’s underachievers, as noted – dropped to fourth-worst on the year with a meager 1.00% return for the year. The papermakers have now been among the year’s worst performers for two weeks out of the last three.

The securities and commodities brokers, dealers and exchanges sector (up 1.11%) moved up to just fifth-worst for the year, after having been fourth-worst the previous week.

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