Advantage Data: Market breaks three-week slump as health care, lodging lead the way

By Paul Deckelman

New York, Aug. 31 – The junk bond market broke out of a three-week losing streak last week, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

It was the first such weekly upturn, with gains seen across a majority of sectors, since the week ended July 31.

The gain seems to have renewed the recent pattern of choppiness seen in Junkbondland following 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 still showing losses now in four weeks out of the last six and in six weeks out of the last 10.

On a somewhat longer-term basis, however, with 34 weeks now in the books so far this year, last week’s gain was the 21st weekly advance seen during that time, versus 13 weeks on the downside.

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 17 of those more sizable sectors closing in the black during the week ended Friday, with 13 finishing in the red.

While that was by no means an overwhelming victory, it did represent a clear turnaround from the deeply negative trend seen the week before, when 27 sectors had posted losses and just three sectors had reported gains.

Among specific sectors, health care had the best return among the large-sized sectors, followed by lodging.

Coal mining stayed in its usual position as the worst-performing large sector on the week for a fourth straight time, and not surprisingly, also remained easily the worst-performing sector on a year-to-date basis, its 33rd consecutive week as the year-to-date cellar-dweller.

Lodging meantime remained booked into the penthouse suite as the best year-to-date performer among the major sectors for a 26th straight week.

Indicators on the rebound

Other statistical indicators of general junk market performance turned better across the board from where they had been the previous Friday for the first time in four weeks.

Those indicator gains last Friday and the losses recorded in the weeks ending Aug. 7, Aug. 14 and Aug. 21 came after those market measures had been higher all around during the week ended July 31, which had been the first such upside showing seen in the junk precincts since the week ended May 29. The two months in between had seen those indicators closing either down for the week or mixed at best, each alternating for a week or two.

The Merrill Lynch High Yield Master II index, accordingly, posted its first week on the upside after three straight weeks in the loss column, which, in turn, had followed it having pulled out of an extended slump during the July 31 week.

For a second straight week, it remained slightly in the red on a year-to-date total-return basis and had approached – or even hit – its worst levels for the year in several index categories.

Even with the latest upturn, the widely followed index has still now been down Friday-to-Friday in seven weeks out of the last 10 and, on a longer-term basis, in 10 weeks out of the prior 15.

The index gained 0.276% last week, after having lost 0.764% during the week ended Aug. 21, 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. That latter fall had been one of the largest retreats 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.

But the latest weekly gain – its 20th since the start of the year, versus 14 downturns – cut the index’s year-to-date loss to 0.048% from 0.325% the previous week, which had been its first dip into negative territory since mid-January.

That year-to-date loss at the end of the week was also an improvement from the 1.136% cumulative deficit recorded last Monday, Aug. 24 – its worst level for the year and, in fact, the biggest cumulative loss seen since Oct. 11, 2011, when it had showed a 1.745% deficit.

All of those 2015 year-to-date returns meanwhile remained well down from the 4.062% at which it had ended on May 29, its peak high level for the year so far.

The index had finished 2014 returning 2.503%.

Among its other components, Friday’s yield to worst had fallen to 7.372% from 7.451% the Friday before and from 7.641% on Aug, 13, its highest point for the year so far. Its low point for the year so far has been 5.843%, seen on Feb. 27. The yield had ended 2014 at 6.448%.

Its spread to worst over comparable Treasury issues tightened to 587 basis points from 603 bps the Friday before and from its widest level for the year so far, 625 bps on Aug. 24. All of 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 bonds tracked by the index rose to 94.81955 from 94.68345 on the previous Friday and up as well from its new low for the year of 93.896, set on Aug. 24. It had ended 2014 at 98.8747, while its high for this year was 101.3272, set on Feb. 27.

Health care is robust

Back on a sector-by-sector basis, Advantage Data meanwhile showed the health care sector having posted the best results of any of the large-sized industry groupings, gaining 0.53% on the week.

Also showing strength were lodging (up 0.47%), industrial and commercial machinery and computer equipment manufacturing (up 0.42%), printing and publishing (up 0.37%) and transportation equipment manufacturing (up 0.35%).

It was lodging’s second straight time among the Top Five best weekly performers, having also been there during the week ended Aug. 21 with a 0.08% gain. The innkeepers have now been in the Top Five in three weeks out of the last four and in six weeks out of the last eight.

The transportation equipment manufacturers, on the other hand, had been among the Bottom Five worst weekly finishers in each of the two previous weeks, posting losses of 1.05% in the Aug. 21 week and 1.39% in the week ended Aug. 14.

Coal takes its lumps

On the downside, coal – as usual – was at the very bottom of the pile last week with a 1.08% loss. It was the fourth straight week in which coal suffered the worst loss of any of the significantly sized sectors, including its 5.04% plunge during the Aug. 21 week, on top of the Aug. 14 week’s 3.02% loss and the 6.11% nosedive seen during the week ended Aug. 7.

All told, coal has now been the absolute worst-performing large-sized sector for nine weeks out of the last 10 – a losing streak temporarily interrupted by coal’s improbable jump during 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 before returning to its customary last-place position the following week.

It has also held that unenviable distinction in 16 weeks out of the last 18 – a skid additionally interrupted only by a similar worst-to-first journey during the week ended June 19 – and over 17 weeks out of the last 20.

Additionally, coal has now been among the Bottom Five worst-performing large sectors for a given week – usually as the absolute worst finisher but other times not – in 19 weeks out of the last 22 and in 22 weeks out of the last 26.

Other key sectors showing notable losses last week included metals mining (down 0.95%), depository financial institutions (down 0.72%), paper manufacturing (down 0.64%), and non-depository credit institutions (down 0.28%).

The metals miners have now been among the Bottom Five underperformers in three weeks out of the last four, in four weeks out of the last six and in six weeks out of the last 10.

The depository financials, on the other hand, had been in the Top Five the week before, with a gain of 0.28%.

YTD: Lodging still on top

On a year-to-date basis, the lodging sector was the best cumulative performer for a 26th consecutive week, with a gain of 13.47% for the year so far.

The food stores grouping (up 8.34%) was in the runner-up spot for a 15th straight week and for a 16th week in the last 17.

Holding companies and other investment offices (up 4.99%) were third-best for a fifth successive week and have now been in third place for 11 weeks out of the last 12.

Food manufacturing (up 4.32%) improved by one notch in the year-to-date standings, moving up to fourth-best from just fifth-strongest the previous week. The sector has now been fourth-best in two weeks out of the last three.

Health care (up 4.25%) moved up to fifth-best on the year last week, despite not having been among the year-to-date leaders the week before.

Health care, as noted, was last week’s leader among the weekly Top Five, and lodging was also in that elite grouping as well.

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 33nd straight week, showing a 31.85% year-to-date loss.

Oil and natural gas exploration and production companies were second-worst on the year for a second successive week, with a negative return of 8.17%.

Metals mining (down 6.98%) was third-worst, also for a second consecutive week.

Primary metals processing (down 0.75%) and petroleum refining (down 0.50%) fell to fourth- and fifth-worst, respectively, last week, despite not having been among the worst key-sector underachievers the week before.

Last week was the first week since January in which as many as five key sectors were in the red for the year.

Coal mining and metals mining, as noted, were also among the Bottom Five weekly laggards.

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