Advantage Data: Market slides for third straight week as coal, oil and gas extend big losses

By Paul Deckelman

New York, Aug. 24 – The junk bond market remained under pressure last week, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

It was the third consecutive week in which losses were seen across most sectors, in contrast to the last recent upturn, which took place during the week ended July 31.

The current losing streak seems to have interrupted the recent pattern of choppiness in Junkbondland, which had been seen since the end of a long winning streak in early May. Since then, the market has experienced periods of a week or two of losses, alternating with a week or two of gains.

But things have been decidedly negative of late, with junk showing losses now in four weeks out of the last five and in six weeks out of the last 10.

On a somewhat longer-term basis, with 33 weeks now in the books so far this year, last week’s loss was the 13th 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 59 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 27 of those more sizable sectors closing in the red during the week ended Friday, with only three finishing in the black.

That essentially maintained the negative trend seen the week before, when 28 sectors had posted losses and just two sectors had reported gains.

Among specific sectors, coal mining remained in its usual position as the worst-performing large sector on the week for a third straight time, and not surprisingly, also remained easily the worst-performing sector on a year-to-date basis, its 32nd consecutive week as the year-to-date cellar-dweller.

On the upside, insurance carriers showed a decent gain on the week; as noted, it was one of only three of the larger-sized sectors to actually show gains on the week.

Lodging meantime remained booked into the penthouse suite as the best year-to-date performer among the major sectors for a 25th straight week.

Index slides into the red

Other statistical indicators of general junk market performance were lower across the board from where they had been the previous Friday for a third straight week.

The struggling Merrill Lynch High Yield Master II index posted its third straight week on the downside after having pulled out an extended slump during the July 31 week. It also fell into the red on a year-to-date total return basis and approached – or even hit – its worst levels for the year in several index categories.

The widely followed index has now been down week over week in seven weeks out of the last nine and, on a longer-term basis, in 10 weeks out of the prior 14.

It lost 0.764% last week, on top of downturns of 0.596% during the week ended Aug. 14 and a plunge of 0.802% during the week ended Aug. 7, which had been one of the largest downturns seen so far this year, exceeded only by its 1.01% nosedive during the week ended July 24, its biggest weekly loss of the year.

The latest weekly loss – its 14th since the start of the year, versus 19 upturns – pushed the index’s year-to-date return into negative territory for the first time since mid-January, with a cumulative loss as of Friday of 0.323% – the most red ink seen since Jan. 6, 2015, when it had shown a 0.59% year-to-date loss. In contrast, it had still showed a positive return of 0.444% the previous Friday.

All of those year-to-date returns 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 7.451% from 7.123% the Friday before. On Aug. 13, the yield had spiked up to its new high point of the year so far, 7.641%, up from the previous high of 7.328% the day before. 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 rose to 603 basis points from 589 bps the week before. It established a new wide point for the year on Aug. 13 at 612 bps, up from the previous wide of 586 bps set the day before. 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 fell to 94.68345 on Friday, a new low for the year, versus the previous low of 94.986122, set on Thursday, and the previous Friday’s 95.558. It had ended 2014 at 98.8747, while its high for this year was 101.3272, set on Feb. 27.

Coal collapse continues

Back on a sector-by-sector basis, Advantage Data meanwhile showed coal mining retaining its usual status as the worst-performing large-sized sector for a third consecutive week, losing 5.04%, on top of the previous week’s 3.02% and the 6.11% plunge seen the week before that, ended Aug. 7.

All of those substantial losses were in sharp contrast to the week ended July 31, when the volatile sector had been in the unaccustomed position of the best-performing significantly sized grouping, returning 0.86% for the week.

The week before that one, ended July 24, it had also been the worst large-sized sector, swooning by 4.91% – so coal thus followed the unusual trajectory of going from worst that week to first the following week, and then back to worst the next week.

All told, coal has now been the absolute worst-performing large-sized sector for eight weeks out of the last nine and has held that unenviable distinction in 15 weeks out of the last 17 – a losing streak interrupted only by a similar worst-to-first journey during the week ended June 19 – and over 16 weeks out of the last 19.

Coal has now also been among the Bottom Five worst-performing large sectors for a given week – sometimes as the absolute worst finisher, other times not – in 18 weeks out of the last 21 and in 21 weeks out of the last 25.

Other key sectors showing notable losses last week included oil and natural gas exploration and production (down 3.62%), industrial and commercial machinery and computer equipment manufacturing (down 1.34%), primary metals processing (down 1.27%) and transportation equipment manufacturing (down 1.05%).

Like coal, oil and gas was down for a third straight week, having slid by 2.14% in the week ended Aug. 14 and by 3.45% in the week ended Aug. 7, and has also 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 nine weeks out of the last 10.

Primary metals processing and transportation equipment manufacturing have now been among the worst losers for two straight weeks, having also been in the Bottom Five the previous week with losses of 1.55% and 1.13%, respectively.

Insurers show gains

On the upside, as had been the case the week before, there wasn’t much positive going on last week.

Insurance carriers had the best return among the large-sized sectors, rising by 0.40%.

Depository financial institutions (up 0.28%) and lodging (up 0.08%) were the only other major sectors finishing in the black this week.

Lodging has now been among the Top Five best-performing large sectors in two weeks out of the last three and in five weeks out of the last seven.

The Top Five list of the week’s best-performing large-sized sectors thus was filled out last week by sectors whose losses were miniscule compared with the downturns that other sectors suffered last week.

These included food stores (down 0.03%) and the food manufacturing and petroleum refining sectors, each of which was down by 0.05% on the week.

Food stores have now been among the Top Five in three weeks out of the last four, while the food manufacturers were there for a second straight week, having also been among the stronger performers the previous week with a relatively modest 0.19% loss.

YTD: Lodging still on top

On a year-to-date basis, the lodging sector was the best cumulative performer for a 25th consecutive week, with a gain of 18.91% for the year so far.

The food stores grouping (up 8.29%) was in the runner-up spot for a 14th straight week and for a 15th week in the last 16.

Holding companies and other investment offices (up 5.39%) were third-best for a fourth successive week and have now been in third place for 10 weeks out of the last 11.

Depository financial institutions (up 4.45%) rose to fourth-best on the year, despite not having been among the cumulative leaders the week before.

Food manufacturing (up 4.40%) fell one notch in the rankings, to just fifth-best on the year from fourth-best the previous week, but it has now been in the Number-Five slot in two weeks out of the last three.

All of the cumulative leaders, except for the holding companies sector, were also among the Top Five weekly leaders, as noted.

YTD: Coal still buried

On the downside, coal mining continued to languish at the bottom of the pile as the worst year-to-date performer for a 32nd straight week, showing a 29.21% year-to-date loss.

Oil and gas E&Ps fell by one slot to second-worst on the year with a negative return of 8.21%, after having been just third-worst for the previous four straight weeks and in five weeks out of the previous six.

It traded places with metals mining (down 7.09%), which moved up by one position in the standings, relatively speaking, to just third-worst, after having been second-worst year to date for the previous six straight weeks.

Transportation equipment manufacturing (down 0.69%) was fourth-worst on the year for a third straight week and in four weeks out of the previous five.

Last week was the second straight week that as many as four key sectors were in the red for the year, a situation also seen throughout January.

Industrial and commercial machinery and computer equipment manufacturers fell to fifth-worst on the year with a paltry 0.43% positive return, despite not having been among the worst cumulative performers the week before.

All of the worst year-to-date laggards, except for metals mining, were also among the Bottom Five weekly underachievers, as noted.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.