Advantage Data: Recently choppy market falls as coal, oil and gas, revert back to usual big losses

By Paul Deckelman

New York, Aug. 10 – The junk bond market retreated notably last week, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

The loss stood in marked contrast to the decidedly better finish seen the week before, ended July 31.

Showing the recent choppiness seen in Junkbondland, that higher finish had been a solid comeback from big losses recorded in the week ended July 24, which had represented a sharp reversal from the robust gains notched the week before, ended July 17. That advance, in turn, had followed a downside performance in the week ended July 10, its second straight such downturn.

Junk bonds have now been down in two weeks out of the last three, in four weeks out of the last six and in six weeks over the last 10.

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

On a somewhat longer-term basis, with 31 weeks now in the books so far this year, last week loss was the 11th weekly setback seen during that time, versus 20 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 20 of those more sizable sectors closing in the red during the week ended Friday, with 10 sectors finishing in the black.

That was in sharp contrast to the week before, when 25 sectors had posted gains, with only four sectors showing losses and one other ending the week unchanged, showing neither a gain nor a loss.

Among specific sectors, the coal mining sector was back in its usual position as the worst-performing large sector on the week, after taking an unusual detour the week before, when it was the best finisher among that whole group.

Not surprisingly, coal also remained easily the worst-performing sector on a year-to-date basis, its 30th consecutive week as the YTD cellar-dweller.

On the upside, the lodging sector – among the prior week’s least-impressive performers – was solidly back in command as the top finisher last week.

Lodging also meantime continued to hold sway as the best year-to-date performer among the major sectors for a 23rd straight week.

Volatile index hits the skids

Other statistical indicators of general junk market performance ended the week lower across the board from where they had been the previous Friday, after having been higher all around during the week ended July 31, which had been the first such upside showing since the week ended May 29.

The struggling Merrill Lynch High Yield Master II index – which had seemed to pull strongly out of an extended slump during the July 31 week – was back on the slide last week, moving lower in each of the week’s five trading sessions and hitting its worst levels for the year in several index categories.

The widely followed index has now been down in five weeks out of the last seven and, on a longer-term basis, in eight weeks out of the prior 12.

It lost 0.802% last week, in sharp contrast to the previous week’s gain of 0.439%.

Last week’s loss was the second-steepest weekly downturn this year, exceeded only by its 1.01% plunge during the week ended July 24, its biggest weekly loss of the year.

The latest weekly loss – its 12th since the start of the year, versus 19 upturns – lowered the index’s year-to-date return to 1.046% on Friday from 1.863% the week before.

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 risen to 7.118%, up from 6.912% the Friday before. The latest yield was a new high point for the year, surpassing the previous 2015 high of 7.076%, set on July 27. Its low point for the year so far, meanwhile, has been 5.843%, seen on Feb. 27. The yield had ended 2014 at 6.448%.

Its spread to worst over comparable Treasury issues shot up to a new wide point for the year of 560 basis points from the previous Friday’s 545 bps and from the previous wide point for the year of 558 bps, on July 27. Those levels compare unfavorably with the spread to worst on the last day of 2014 of 513 bps, as well as its tightest point this year of 451 bps on March 2 and again on March 3.

And its average price of the components listed within fell to a new low for the year of 96.26659 on Friday, down from the previous Friday’s 97.18866 price, as well as the prior low of 96.28829, also set on July 27. It had ended 2014 at 98.8747, and its high for this year was 101.3272, set on Feb. 27.

Coal back in the hole

Back on a sector-by-sector basis, Advantage Data meanwhile showed coal mining returning to its usual status as the worst-performing large-sized sector, plunging by 6.11% on the week.

That was in sharp contrast to the week before, when the volatile sector had been in the unaccustomed position of the best-performing significantly sized grouping, returning 0.86% for the week ended July 31.

The week before that, ended July 24, it had also been the worst large-sized sector, swooning by 4.91% – so coal thus went from worst that week, to first the following week, and then back to worst last week.

All told, coal has now been the worst-performing large-sized sector for six weeks out of the last seven and has held that unenviable distinction in 13 weeks out of the last 15 – a losing streak interrupted only by a similar worst-to-first journey during the week ended June 19 – and over 14 weeks out of the last 17.

Coal has now also been among the Bottom Five worst-performing large sectors for a given week in 16 weeks out of the last 17 and in 19 weeks out of the last 23.

Other key sectors showing notable losses last week included oil and natural gas exploration and production (down 3.45%), metals mining (down 1.85%), non-computer electronics manufacturing (down 0.98%) and electric and gas utilities (down 0.89%).

Like coal, oil and gas has most recently been seen more often among the worst performers than the best; although it too had been among the strongest performers during the July 31 week, when it returned 0.65%. But the energy credits have now been among the Bottom Five in seven weeks out of the last eight.

Metals mining, while not among the underachievers during the July 31 week, has now still been among the Bottom Five in two weeks out of the last three and in six weeks out of the last seven.

The electronics manufacturers have been there now in two weeks out of the last three, while the utilities have been there in two straight weeks, having also been there during the July 31 week with a 0.01% loss.

Lodging booked into top spot

On the upside, the lodging sector was the clear performance leader among the significantly sized sectors last week with a 1.37% gain for the week – in contrast to the week before, when it actually was among the weakest performers, finishing unchanged on the week, with neither a gain nor a loss.

However, the hoteliers have now been among the Top Five best-performing large-sized sectors in four weeks out of the last five.

Also showing strength in the past week were the wholesale durable goods distributors (up 0.63%), food stores (up 0.52%), building construction (up 0.22%) and non-depository credit institutions (up 0.19%).

It was the second straight week among the Top Five for the grocers, who had also been there the week before with a 0.57% gain.

Building construction, while not among the standout performers in the July 31 week, has now been in the Top Five in two week out of the last three.

The durable goods distributors and the non-depository credit institutions had not previously been among either the weekly leaders or decliners in the most recent few weeks.

YTD: Lodging still on top

On a year-to-date basis, the lodging sector – the week’s best large-sized finisher, as noted – was also the best cumulative performer for a 23rd consecutive week, with a 21.53% gain for the year so far.

The food stores grouping (up 8.85%) was in the runner-up spot for a 12th consecutive week.

Holding companies and other investment offices (up 5.80%) were third-best for a second consecutive week, and have now been in third place for eight weeks out of the last nine.

Depository financial institutions (up 4.48%) moved up one notch in the standings, to fourth-best on the year, after having been just fifth-best for the previous two weeks.

Amusement and recreation services and food manufacturing (both up 4.46%) were in a tie for fifth-strongest on the year; neither had been among the cumulative winners – or the losers, for that matter – the week before.

Coal still buried

On the downside, coal mining – the week’s worst performer, as noted – continued to languish at the bottom of the pile as the worst year-to-date performer as well for a 30th straight week, showing a 25.60% year-to-date loss.

The metals mining sector – also one of the week’s worst performers – was second-worst on the year for a fifth straight week with a cumulative loss of 6.12%.

Oil and gas E&Ps – which joined coal in a return trip to the week’s Bottom Five, as noted – were third-worst on the year for a third straight week, with a negative return of 5.55%, and have now been among the year’s worst laggards for four weeks out of the last five.

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

Transportation equipment manufacturing (up 1.33%) was fourth-worst on the year, a position it has now held for three weeks out of the last four.

Industrial and commercial machinery and computer manufacturing (up 1.48%) fell to fifth-worst on the year, despite not having been among the worst cumulative performers the week before.

© 2015 Prospect News.
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