Advantage Data: Junk sectors solidly negative for second straight week

By Paul Deckelman

New York, Oct. 5 – The junk bond market remained broadly lower last week, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

It was the second consecutive week in which the vast majority of sectors had negative returns for the week, following one week in which the sectors had been evenly split between gainers and losers and three consecutive weeks before that during which more sectors had advanced than retreated. Those three positive weeks, in turn, had followed three straight weeks when more of those market groupings were on the downside than on the upside.

Generally speaking, Junkbondland has been choppy ever since the end of a long winning streak in early May, with the market experiencing periods of a week or two of gains alternating with a couple of weeks of losses.

Over the last 10 weeks, going back to the week ended July 31, more sectors have been worse in five of those weeks, more have been better in four of them, and, as noted, they were evenly split in one week.

Things have been more positive on a somewhat longer-term basis; with 39 weeks now in the books so far this year, 23 weekly advances have been seen during that time, versus 15 weeks on the downside and the aforementioned one even split, which occurred during the week ended Sept. 18.

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 29 of those more sizable sectors closing in the red during the week ended Friday, with only one sector actually finishing in the black.

That expanded the negative pattern seen the previous week, ended Sept. 25, when 26 sectors ended in negative territory, just three had positive returns and one sector ended the week with a flat 0.00% reading, indicating neither a gain nor a loss.

That was in contrast versus the Sept. 18 week, when 14 of the larger sectors showed gains on the week, 14 showed losses and two sectors were unchanged.

The week before that, ended Sept. 11, 28 of those key sectors ended in positive territory and just two closed in negative territory.

Among specific sectors last week, oil and natural gas exploration and production took over as the worst-performing large-sized sector from coal mining, which had held that unenviable distinction for two straight weeks before that. Coal meanwhile remained easily the worst-performing sector on a year-to-date basis, its 38th consecutive week as the year-to-date cellar-dweller.

Depository financial institutions was the sole major sector finishing in the black this week.

Lodging meantime remained booked into the penthouse suite as the best year-to-date performer among the major sectors for a 31st straight week.

Indicators, index stay lower

Other statistical indicators of general junk market performance were lower all around last week from where they had been the previous Friday for a third straight week, after having been higher across the board the week before that for a second week out of three, interrupted by one mixed week.

The Merrill Lynch High Yield Master II index, meanwhile, suffered its third consecutive weekly loss after three straight weeks before that on the upside. Those three winning weeks had followed three successive weeks before that in the loss column, which, in turn, had followed the index having pulled out of an extended slump during the July 31 week.

The index plummeted by 1.78% last week, the second straight week in which it set a new mark for largest weekly loss; during the week ended Sept. 25, it had plunged by 1.445%, which had surpassed the 1.01% retreat seen the week ended July 24, the previous largest weekly loss for the year.

It was the fourth weekly loss for the widely followed index in the last seven weeks and its sixth weekly downturn in the last nine weeks.

On a somewhat longer-term basis, it has now been down on a Friday-to-Friday basis in 10 weeks out of the last 15 and in 13 weeks out of the prior 20. However, for the year to date, gaining weeks still outnumbered the decliners by a 22-to-17 margin.

The latest week’s loss caused the index’s year-to-date deficit to widen out to 3.069% – its worst cumulative loss for the year, surpassing the 1.312% year-to-date loss recorded the week before. The year-to-date loss seen Friday was the index’s biggest cumulative loss seen since Oct. 5, 2011, when it had showed a 3.834% loss for the year.

Its peak gain for this year, meanwhile, was the 4.062% at which it had ended on May 29.

The index had finished 2014 returning 2.503%.

Among its other components, Friday’s yield to worst had risen to 8.222% from 7.677% the Friday before. This past Friday’s yield thus became the highest seen so far this year. 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 ballooned out to the year’s widest at 685 basis points, from 620 bps the Friday 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 bonds tracked by the index fell to 91.67313 – a new low level for the year – from 93.33201 the previous Friday. It had ended 2014 at 98.8747, while its high for this year was 101.3272, set on Feb. 27.

Oil is roiled

Back on a sector-by-sector basis, Advantage Data meanwhile showed the oil and gas E&P sector (down 4.60%) as the worst-performing large-sized sector on a weekly basis, replacing coal mining (down 2.48%), which had held that position over the previous two weeks.

The energy grouping has now been among the Bottom Five worst-performing large-sized sectors in two weeks out of the last three.

Coal, meanwhile, has now been in the Bottom Five for three straight weeks, including the previous two weeks when it was the worst performer, as noted, with losses of 7.82% during the week ended Sept. 25 and 3.36% in the week ended Sept. 18.

On a longer-term basis, coal has now been in the Bottom Five for 23 weeks out of the last 27 and 26 weeks out of the last 30, sometimes as the absolute worst major-sector performer (in six weeks out of the last nine and in 19 weeks out of the last 23), other times, not.

Other key sectors showing sizable losses in the latest week included chemical manufacturing (down 2.88%), primary metals processing (down 2.33%) and metals mining (down 2.28%).

Last week was the second consecutive week among the Bottom Five for the chemical makers, who had also been there the previous week with a loss of an even 2.00%, while primary metals processing was among the big losers for a third week in a row, having also been there in the Sept. 25 week with a 2.95% deficit, and in the Sept, 18 week with a downturn of 0.42%.

Depository financials firm

On the upside, depository financial institutions (up 0.06%) was the only significantly sized sector actually showing a profit last week, as noted.

It was the depositories’ second week in the last three among the Top Five best-performing large-sized sectors.

The remainder of last week’s Top Five was filled out by sectors showing only relatively smaller losses than most other sectors, relatively speaking.

These included real estate (down 0.43%), insurance carriers (down 0.51%), petroleum refining (down 0.56%) and food stores (down 0.61%).

It was the latter grouping’s second straight week in the Top Five, having also been there during the Sept. 25 week with a gain of 0.10%.

Real estate has now been among the elite finishers in the last three weeks, with gains of 0.04% during the Sept. 25 week and 0.24% in the Sept. 18 week, while the insurers have been there in two weeks out of the last three, in three weeks out of the last five and in four weeks out of the last seven.

YTD: Lodging still on top

On a year-to-date basis, the lodging sector was the best cumulative performer for a 31st consecutive week, with a gain of 21.13% for the year so far.

The food stores grouping (up 7.15%) was in the runner-up spot for a 20th straight week and for a 21st week in the last 22.

Depository financial institutions (up 5.06%), the week’s only gainer and thus, strongest performer, as noted, moved up by one position in the rankings to third-best, after having been fourth-best for the two previous weeks.

The depositories switched places with holding companies and other investment offices (up 4.25%), which fell into fourth place last week after having been third-best year to date for two consecutive weeks before that, and in eight weeks out of the previous nine and in 14 weeks out of the previous 16.

Securities and commodities brokers, dealers and exchanges (up 3.94%) improved to fifth-best on the year despite not having been among the leaders the week before.

Besides the depository financial institutions, the food stores were also among the week’s best finishers, as noted.

YTD: Coal still buried

On the downside, coal mining continued to wallow at the bottom of the pile as the worst year-to-date performer for a 38th straight week, showing a 34.16% year-to-date loss.

Oil and gas E&P companies were second-worst on the year for a seventh successive week, with a negative return of 13.86%.

Metals mining (7.43%) was third-worst, also for a seventh week in a row.

Primary metals processing (down 4.82%) was fourth-worst on the year so far for a sixth consecutive week.

Transportation equipment manufacturing (down 1.16%) fell to fifth-worst for the year so far, despite not having been among the worst underachievers the week before.

Oil and gas, coal, metals mining and primary metals processing were also among the week’s worst finishers, as noted.

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