Advantage Data: Junk sectors post fourth straight gain; retailers roll; coal in a hole

By Paul Deckelman

New York, Nov. 2 – The junk bond market posted its fourth straight week of broadly higher gains, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

The surge seen last week and before that during the weeks ended Oct. 9, Oct. 16 and Oct. 23 had followed on the heels of a two-week slump during the weeks ended Sept. 25 and Oct. 2.

Those downside weeks, in turn, had followed one week, ended Sept. 18, 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.

Prior to the current period of extended gains, Junkbondland, generally speaking, had been choppy ever since the end of a long winning streak in early May, with the market after that experiencing periods of several weeks of gains alternating with a couple of weeks of losses.

But over the last 10 weeks, going back to the week ended Aug. 28, more sectors have been better in seven of those weeks, more have been worse in two of them and as noted, they were evenly split during the Sept. 18 week.

On a somewhat longer-term basis, with 43 weeks now in the books so far this year, 27 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 27 of those more sizable sectors closing in the black during the week ended Friday, while six ended in the red – the second consecutive week of a 27-to-6 positive split.

Among the specific large-sized sectors, miscellaneous retailing was the top performer last week.

On the downside, coal continued to languish at the very bottom of the pile for a third straight week.

Not surprisingly, coal has also been the worst-performing big sector on a year-to-date basis for the last 42 straight weeks, while lodging remained the top cumulative performer for a 35th week in a row.

Retailing rings up gains

Advantage Data showed miscellaneous retailing to be last week’s top performer among the key sectors, with a 0.93% return on the week.

Other such sectors showing strength last week included amusement and recreation services (up 0.82%), automotive services (up 0.68%), printing and publishing (up 0.58%) and precision instrument manufacturing (up 0.54%).

It was the second straight week among the Top Five best-performing large-sized sectors for amusement and recreation, which had actually been among three sectors tied for the lead during the Oct. 23 week with a 1.03% gain.

Automotive services – consisting primarily of car-rental companies – has now been among the Top Five in two weeks out of the last three.

Coal careens downward

On the downside, coal mining lost a whopping 20.08% last week, its third straight week as the single worst large-sized performer, coming on top of losses of 4.64% in the Oct. 23 week and 1.63% in the Oct. 16 week.

Coal has now been on the Bottom Five list of worst large-sector performers in six weeks out of the last seven.

Longer-term, it has been chronically among the Bottom Five for most of the year, with the exception of a week or two here and there in which the volatile sector has shown temporary flashes of strength, only to revert back to form the following week. It has also spent a majority of those weeks as the absolute worst-performing key sector.

Also posting losses last week were energy exploration and production (down 2.92%), oil and natural gas extraction (down 2.40%), oilfield services (down 1.15%) and metals mining (down 0.76%).

It was the third straight week among the Bottom Five sectors for energy exploration and production, and for oil and gas extraction, which were also there the previous week with losses of 1.12% and 0.68%, respectively. The latter sector has now been in the Bottom Five in six weeks out of the last seven.

YTD: Lodging still on top

On a year-to-date basis, the lodging sector remained booked into the penthouse suite as the best cumulative performer among the major sectors for a 35th straight week with a gain of 19.35% for the year so far.

The food stores grouping (up 9.43%) was in the runner-up spot for a 24th straight week.

Depository financial institutions (up 6.49%) moved up one notch to third-strongest from fourth-best the previous week; the depository financials, have now been in the Number-Three slot in two weeks out of the last three and a little longer term, in four weeks out of the last six.

Securities and commodities brokers, dealers and exchanges (up 6.19%) moved up by one position into the fourth-place slot vacated by the depository financials, after having been just fifth-best over the previous two weeks.

With the Number-Five perch thus vacated, another financial sector – holding companies and other investment offices – improved to fifth-best on the year with a 5.70% cumulative return, despite not having been among the year-to-date leaders the week before.

For a third straight week, none of the week’s best finishers were also among the year-to-date leaders.

YTD: Coal still buried

On the downside, the worst-performing key sectors on a year-to-date basis were unchanged from the previous week in their rankings relative to one another.

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 42nd straight week, showing a 33.22% year-to-date loss.

The energy E&P sector (down 13.46%) was second-worst on the year for a fourth straight week.

Oil and gas extraction (down 10.63%) was third-worst on the year, also for a fourth straight week.

Metals mining (down 5.77%) was fourth-worst on the year for a second straight week.

And primary metals processing (down 3.31%) was fifth-worst on the year, also for a second consecutive week.

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

Indicators mixed, index off

While the individual sectors mostly showed strength, according to the Advantage Data calculations, other statistical indicators of general junk market performance meanwhile turned mixed last week versus where they had been the previous Friday for the first time in nearly two months, after having posted three consecutive week-over-week gains across the board, which had broken a losing streak of three straight weeks before that. It was the first time the indicators had finished the week mixed since the week ended Sept. 4.

Among the market measures contributing to that mixed performance after three strong upside weeks before that was the Merrill Lynch High Yield Master II index, which saw its first losing week since the week ended Oct. 2.

The index eased by 0.089% last week, in contrast to the 0.602% rise seen the week before, ended Oct. 23.

The index has now been down in four weeks out of the last 10. For the year to date, gaining weeks still outnumber the decliners by a 25-to-18 margin.

The index’s year-to-date return figure just barely avoided falling back into the red, where it had been earlier in the month. The latest week’s loss dropped its cumulative gain to just 0.129% from 0.281% the week before.

The index’s worst year-to-date deficit was the 3.069% loss posted on Friday, Oct. 2 – not only its worst cumulative loss for this year so far, but 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 7.417% from 7.429% 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, 2015. The yield had ended 2014 at 6.448%.

Its spread to worst over comparable Treasury issues narrowed to 595 basis points from 604 bps the week before; those levels were still well in from the year’s widest level of 685 bps on Oct. 2. However, those levels all 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 94.22699 from 94.4434 the week before, though it remained well up from its 2015 low of 91.67313 on Oct. 2. It had ended 2014 at 98.8747, while its high for this year was 101.3272, set on Feb. 27, 2015.

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