Advantage Data: Metals mining tops as junk sectors post second straight advance

By Paul Deckelman

New York, Oct. 19 – The junk bond market was solidly positive for a second straight week, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Last week’s strength, and the surge seen the week before that, ended Oct. 9, followed on the heels of a two- week slump during the weeks ended Sept. 25 and Oct. 2.

Those downside weeks had followed one week during 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 late August and early September, in turn, had followed three straight weeks going back to the beginning of August 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 several weeks of gains alternating with a couple of weeks of losses.

Over the last 10 weeks, going back to the week ended Aug. 14, more sectors have been better in five of those weeks, more have been worse in four of them, and, as noted, they were evenly split in one week, ended Sept. 18.

On a somewhat longer-term basis, with 41 weeks now in the books so far this year, 25 weekly advances have been recorded during that time, versus 15 weeks on the downside and the aforementioned one evenly split week.

A subset of the 33 most significantly sized sectors (out of the total of 61 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 black during the week ended Friday, against four that ended in the red.

That was a slight pullback from the super-strong performance seen during the week ended Oct. 9, when all 33 of those larger-sized sectors posted gains and not a single one was showing a loss.

That, in turn, was a far cry from the profoundly negative pattern seen during the week ended Oct. 2, when just a single bigger sector had ended on the positive side of the ledger.

Among specific sectors last week, metals mining was the best-performing large sector on the week, while coal mining was back in its usual position down at the bottom of the pile, after having shown rare strength the previous week to end among the better finishers.

Not surprisingly, coal remained the single worst performer on a year-to-date basis for a 40th consecutive week, while lodging had the best cumulative return of any major sector for a 33rd straight time.

Indicators, index improve

For a second week in a row, other statistical indicators of general junk market performance mirrored the upturn seen in the sectors, posting week-over-week gains across the board versus where they had been the previous Friday. Those two strong weeks broke a losing streak of three straight weeks before that.

Among the market measures doing better for a second successive week was the Merrill Lynch High Yield Master II index; as was the case with the other indicators, the last two strong weeks also broke out of its recent three-week skid.

It rose by 0.068% last week, after having zoomed by 2.702% the week before – its biggest weekly advance for 2015, also representing one of the biggest weekly gains ever recorded.

That great leap for the volatile index had followed its 1.78% plunge in the week ended Oct. 2 – its second straight new mark for the largest weekly loss for the year so far, topping the 1.445% weekly loss during the week ended Sept. 25.

The index has now been up in five weeks out of the last nine, though on a somewhat longer basis, it has still shown losses in 10 weeks out of the last 17 and 13 weeks out of the last 22. However, for the year to date, gaining weeks still outnumber the decliners by a 24-to-17 margin.

The latest week’s gain cut the index’s year-to-date deficit to 0.382% from the previous week’s 0.45% cumulative loss, although both of those figures were considerably improved from the 3.069% year-to-date loss posted the Friday before that, Oct. 2 – its worst cumulative loss for the year as well as the index’s biggest cumulative loss 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 declined to 7.573% from 7.587% the Friday before and from 8.222% on Oct. 2 – the highest yield 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 widened to 623 basis points from the prior week’s 617 bps, to which it had narrowed after having ballooned out the week before to a year’s widest 685 bps. Those levels still 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 eased to 93.99739 from 94.06393 the week before, which was well up from 91.67313 on Oct. 2, its low level for the year. It had ended 2014 at 98.8747, while its high for this year was 101.3272, set on Feb. 27.

Metals mining moves up

Back on a sector-by-sector basis, Advantage Data meanwhile showed the metals mining sector with the strongest showing of any large-sized grouping, up 2.31% on the week. The metals miners were helped by a surge in the bonds of Fortescue Metals Group Ltd. after the Australia-based iron ore miner reported continued success in cutting its production costs amid an environment of weak iron ore prices, and its repurchase of $384 million face amount of its more than $6 billion of debt at a discounted price during the most recent quarter, and its avowed intention of continuing that debt-cutting.

Other sectors showing great strength last week included oilfield services (up 0.69%), transportation equipment manufacturing (up 0.66%), automotive services (up 0.64%) and primary metals processing (up 0.44%).

It was the second consecutive week among the Top Five best-performing sizable sectors for oilfield services and for the metals processors, both of whom had been there the week before with gains of 3.21% and 2.51%, respectively.

Coal back in the hole

On the downside, coal mining lost 1.63% on the week, the worst of any large-sized sector.

That represented a return to form for the coal miners, who had showed a rare sizable gain of 4.13% the week before.

Before that, coal had been among the Bottom Five worst-performing sizable sectors for three straight weeks.

Longer-term, coal has now been among the Bottom Five in 24 weeks out of the last 29 and in 27 weeks out of the last 32.

It has been the absolute worst-performing large sector in seven weeks out of the last 11 and in 20 weeks out of the last 25.

Also posting losses last week were energy exploration and production (down 0.13%), health care (down 0.10%) and oil and natural gas extraction (down 0.09%).

Those were the only other sectors besides coal finishing in the red last week. The Bottom Five was rounded out by building construction, whose 0.04% gain was the smallest of any of the key sectors.

Last week’s results were a comedown for both the energy exploration and production sector and the oil and gas extraction sector, after having been among the Top Five in the Oct. 9 week with gains of 4.79% and 4.57%, respectively; exploration and production had been the single strongest finisher that week.

But except for that upward blip, oil and gas extraction has now been among the Bottom Five in four weeks out of the last five.

YTD: Lodging still on top

On a year-to-date basis, the lodging sector remained booked into the penthouse suite as the best year-to-date performer among the major sectors for a 33rd straight week with a gain of 18.44% for the year so far.

The food stores grouping (up 9.09%) was in the runner-up spot for a 22nd straight week and for a 23rd week in the last 24.

Depository financial institutions (up 5.98%) moved up two notches in the standings to third-best last week from fifth-strongest the week before that; the depositories have now been in third place in three weeks out of the last four.

Holding companies and other investment offices (up 5.69%) improved to fourth-strongest so far this year despite having not been among the year-to-date leaders the week before; however, they have now been in that Number-Four slot in two weeks out of the last three.

Securities and commodities brokers, dealers and exchanges (up 5.20%) fell one position, to just fifth-best on the year from fourth-best the week before; the sector has now been in fifth place in two weeks out of the last three.

None of the week’s best finishers were among last week’s year-to-date leaders.

YTD: Coal still buried

On the downside, all of the worst performing sectors for the year so far were in the same positions, relative to one another, that they had held during the week ended Oct. 9.

Coal mining – the week’s single-worst finisher, as noted – continued to wallow at the bottom of the pile as the worst year-to-date performer as well for a 40th straight week, showing a 23.33% year-to-date loss.

The energy E&P sector (down 12.76%) was second-worst on the year for a second straight week.

Oil and gas extraction (down 12.17%) was third-worst on the year for a second straight week.

Oilfield services (down 6.46%) was fourth-worst on the year for a second straight week.

And metals mining – despite its Top Five leadership last week, as noted was fifth-worst on the year for a second straight week with a 5.68% loss.

Besides coal, energy exploration and production and oil and gas extraction were also among the week’s worst finishers, as noted.

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