Advantage Data: Junk sectors lower across the board, post second straight decline

By Paul Deckelman

New York, Nov. 16 – The junk bond market’s negative mood deepened last week – its second consecutive week on the downside, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

The sectors had turned narrowly lower the week before, ended Nov. 6, but were decidedly negative during the week ended this past Friday, the data indicated.

Those two weeks of decline follow a four-week winning streak dating back to the week ended Oct. 9.

Prior to that most recent period of extended gains, Junkbondland, generally speaking, had been choppy and sloppy 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 and, during the week ended Sept. 18, one week which saw the sectors evenly split, with neither gains nor losses having the edge.

Over the last 10 weeks, going back to the week ended Sept. 11, 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 during the Sept. 18 week.

On a somewhat longer-term basis, with 45 weeks now in the books so far this year, 27 weekly advances have been recorded during that time, versus 17 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 a clean sweep on the downside, with all 33 of those more sizable sectors closing in the red during the week ended Friday, with none at all ending in the black.

That represented a sharp deterioration from the week ended Nov. 6, when 16 of those major sectors had posted losses, 15 had shown gains, and two other sectors had been unchanged on the week, showing neither a gain nor a loss.

In contrast, during the week before that, ended Oct. 30, some 27 of those key sectors were in positive territory while six were in negative territory.

Among the specific large-sized sectors, several energy-related groupings, such as coal mining and oil and natural gas-related sectors, which had put on a rare show of strength the previous week, were back in their more familiar positions as big losers last week.

With all of the sectors showing losses last week, as noted, there was no upside as such, but some of the financial sectors, like holding companies, insurance carriers and real estate, posted notably smaller losses than the other sectors.

Coal mining remained by far the worst-performing big sector on a year-to-date basis, where it has been for the last 44 straight weeks, while lodging remained the top cumulative performer for a 37th week in a row.

Energy loses power

Advantage Data showed energy-related large-sized sectors back in their familiar role of dominating the Bottom Five list of worst-performing sectors last week, after having made a rare visit to the upside the week before.

Chief among them was coal mining (down 5.49%), which had been among the Top Five best-performing major sectors the week before with a solid 1.08% gain. Coal, though, has now been among the Bottom Five sectors in four weeks out of the last five.

That was also the case for energy production and exploration (down 3.59%) and oil and gas extraction (down 2.74%). Like coal, both of those volatile sectors had been on the Top Five list in the week ended Nov. 6, with gains of 1.41% and 1.19%, respectively; energy E&P, in fact, was the single-best performer out of the 33 significantly sized sectors in that previous week. Also like coal, both have now been among the Bottom Five in four weeks out of the last five.

Also among the latest week’s Bottom Five were primary metals processing (down 2.65%) and amusement and recreation services (down 1.69%). It was the second straight week among the underachievers for the metals processors, who had also been there the week before with 0.98% loss that week.

Financial sectors curb losses

As noted, with all 33 large-sized sectors finishing in the red last week, there was no upside as such, although some sectors – mostly financial – were less red than the others.

Holding companies and other investment offices (down 0.11%) had the smallest loss on the week.

It was joined in the Top Five by insurance carriers (down 0.18%), real estate (down 0.22%), securities and commodities brokers, dealers and exchanges (down 0.36%) and by the sole non-financial industry grouping, building construction (down 0.43%).

None of those five sectors had been among either the key-sector big gainers or losers the week before.

YTD: Lodging still on top

On a year-to-date basis, the best-performing sectors were unchanged in their rankings relative to one another from the week before.

The lodging sector remained booked into the penthouse suite as the best cumulative performer among the major sectors for a 37th straight week with a gain of 16.40% for the year so far.

The food stores grouping (up 7.06%) was in the runner-up spot for a 26th straight week.

Depository financial institutions (up 6.37%) were third-strongest for a third consecutive week and have now been in the Number-Three slot in four weeks out of the last five and over a little longer term, in six weeks out of the last eight.

Holding companies and other investment offices (up 5.99%) were fourth-best for a second straight week.

Securities and commodities brokers, dealers and exchanges (up 5.76%), were fifth-best for a second week in a row and four weeks out of the last five and in five weeks out of the last seven.

As noted, the holdings companies sector and the brokers, dealers and exchanges were also among the week’s relatively better finishers.

YTD: Coal still buried

On the downside, coal mining – the week’s worst-performing large-sized sector, as noted – continued to wallow at the bottom of the pile as the worst year-to-date performer as well, in that position for a 44th straight week with a 34.62% year-to-date loss.

The energy E&P sector was down 15.74% year to date, leaving it second-worst on the year for a sixth straight week.

Oil and gas extraction (down 12.76%) was third-worst on the year, also for a sixth straight week.

Primary metals processing (down 6.22%), fell by one position to fourth-worst on the year, after having been just fifth-worst for three weeks before that.

It traded places with metals mining (down 5.87%), which improved, relatively speaking, to just fifth-worst on the year after having been fourth-worst for the previous three weeks.

Besides coal, the energy E&P, oil and gas extraction and primary metals processing sectors, as noted, were also among the worst weekly performers.

Indicators, index off on week

While the individual sectors moved decidedly to the downside last week, worsening from having only been slightly negative the week before, according to the Advantage Data calculations, other statistical indicators of general junk market performance meanwhile were also lower last week versus where they had been the previous Friday, for a second consecutive week.

Among the market measures contributing to that deteriorating performance was the Merrill Lynch High Yield Master II index, which posted its third consecutive losing week, sliding by 1.40% – one of its biggest weekly losses seen so far this year, eclipsed only by the 1.78% plunge recorded during the week ended Oct. 2.

It had also fallen by 0.353% during the week ended Nov. 6, after having eased by 0.089% during the week ended Oct. 30.

For the year to date, though, gaining weeks still outnumber the decliners by a 25-to-20 margin.

The index’s year-to-date return figure moved further into the red, showing a cumulative loss of 1.621%, after having been down by 0.224% at the end of the previous week.

Its worst year-to-date loss figure has been the 3.069% of red ink recorded on Friday, Oct. 2, which was also the index’s biggest cumulative loss since Oct. 5, 2011, when it had showed a 3.834% deficit 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 7.956% from 7.571% the Friday before, though it remained below the 8.222% posted 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 629 basis points from 589 bps the week before; those levels were still 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 92.2721 on Friday from 93.7348 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.

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