Advantage Data: Junk sectors rebound in latest week, breaking four-week skid

By Paul Deckelman

New York, Dec. 7 – The junk bond market broke out of its recent funk last week, snapping a losing streak which had seen it spend the previous four consecutive weeks 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 ended Nov. 6, but were decidedly more negative during the week ended Nov. 13. After that, they remained clearly negative during the prior two weeks, but definitively got back into positive territory during the week ended this past Friday, the data indicated.

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

Prior to that, Junkbondland, generally speaking, had been choppy and sloppy ever since the end of a long upward surge in early May, with the market after that having experienced 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.

With 48 weeks now in the books so far this year, 28 weekly advances have been recorded during that time, versus 19 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 62 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 20 of those more sizable sectors closing in the black during the week ended Friday, with 13 of those sectors finishing in the red.

That represented a sharp contrast to the previous week, ended Nov. 27, when 25 of those sectors had shown losses on the week and with seven of those sectors showing gains and one sector unchanged, registering neither a loss nor a gain on the week.

Among the specific large-sized sectors, chemical manufacturing was the top performer of any of the large-sized sectors for a third week in a row.

On the downside, metals mining turned in the worst weekly performance for a second straight week.

Coal mining remained by far the worst-performing big sector on a year-to-date basis, where it has been for the last 47 consecutive weeks, while lodging remained the top cumulative performer for a 40th successive week.

Chemical climb continues

On the upside, the chemical manufacturing sector (up 1.20%) turned in the best weekly performance of any of the significantly sized sectors for a third week in a row; it had also led the Top Five during the Nov. 20 week and Nov. 27 week with gains of 0.54% and 0.70%, respectively.

Also showing strength last week were telecommunications (up 0.75%), non-computer electronics manufacturing (up 0.70%), automotive services (up 0.62%) and health care (up 0.48%).

It was the second straight week among the Top Five best-performing large sectors for the electronics manufacturers, who had also been there the week before with a 0.22% gain.

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

Neither telecom nor health care had been among either the biggest gainers or the biggest losers the week before.

Metals mining mauled again

Advantage Data showed the metals mining sector (down 3.42%) as the worst-performing large-sized sector last week – the group’s second straight week achieving that unwanted honor.

The metals miners had also been the single-worst performer in the Nov. 27 week, when it lost 1.89%. It was the sector’s third straight week finishing among the Bottom Five worst-performing large sectors, having also been there the week before that, ended Nov. 20, when it lost 1.80%.

Beyond the metals miners, energy-related large-sized sectors remained in their familiar role of dominating the Bottom Five for a fourth consecutive week last week, after having made a rare visit to the upside four weeks earlier.

These included energy exploration and production (down 2.98%), coal mining (down 2.77%) and oil and natural gas extraction (down 2.03%).

It was energy E&P’s fourth straight week among the Bottom Five, which included its 1.40% loss in the Nov.27 week. The sector has also now been in the Bottom Five in seven weeks out of the last eight.

That matches the performance of both coal and oil and gas extraction. Both have now been in the Bottom five for four consecutive weeks, having been there in the Nov. 27 week with losses of 1.40% and 1.33% that week, and both have also now been there in seven weeks out of the last eight. During that stretch, coal had been the single worst finisher in the weeks ended Nov. 13 (down 5.49%) and Nov. 20 (down 10.21%).

The sole week that the three energy sectors were not among the worst losers was the week ended Nov. 6, when each made a rare show of strength and temporarily landed among the Top Five, only to revert back to form the following week.

The latest week’s Bottom Five list was meantime rounded out by electric and gas utilities (down 0.96%), which were not among either biggest losers or the biggest gainers the week before.

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 40h straight week with a gain of 18.69% for the year so far.

Automotive services – one of the week’s stronger finishers, as noted – shot up to second-best on the year with a 6.08% cumulative return, despite having not been among the biggest 2015 gainers the previous week.

Depository financial institutions (up 7.05%) moved up by one notch in the standings into the runner-up slot, after having held down third place the previous five straight weeks, and in six weeks out of the previous seven and in eight weeks out of the prior 10.

Automotive services (up 6.08%) – one of the week’s better finishers, as noted – jumped to third-best on the year so far, despite having not been among the biggest 2015 gainers so far the previous week.

Holding companies and other investment offices (up 6.06%), fell by two positions in the rankings to just fourth-best on the year so far from second place the previous week.

That pushed the food stores grouping (up 5.93%) down by one slot to fifth-best from fourth-strongest the week before, when it fell by two whole positions in the rankings after having been in the year-to-date runner-up spot for the previous 27 straight weeks, going all the way back to the week ended April 24.

Only the automotive services sector was also among the week’s leading performers.

YTD: Coal still buried

On the downside, all of the worst sectors were unchanged last week, relative to one another, from the positions they had held during the Nov. 20 and Nov. 27 weeks.

Coal mining continued to wallow at the bottom of the pile as the worst year-to-date performer, in that position for a 47th straight week with a 38.42% year-to-date loss.

The energy E&P sector was down 18.62% year to date, leaving it second-worst on the year for a ninth straight week.

Oil and gas extraction (down 15.77%) was third-worst on the year, also for a ninth straight week.

Metals mining (down 9.14%) was fourth-worst on the year for a third straight week and for a sixth week out of the last seven.

That was also the case with primary metals processing (down 8.24%), which was fifth-worst on the year for a third consecutive week and for a sixth week in the last seven.

All of those worst-lagging year-to-date sectors but primary metals were also among the week’s worst finishers, as noted.

Indicators mixed, index lower

While the individual sectors moved to the upside last week according to the Advantage Data calculations, other statistical indicators of general junk market performance were mixed last week versus where they had been the previous Friday for a third consecutive week.

Those three mixed weeks followed two straight weeks before that when they had been lower all around.

But, as had been the case the week before, the Merrill Lynch High Yield Master II index continued to struggle, posting its sixth consecutive losing week. It eased by 0.074%, on top of the 0.134% decline seen during the week ended Nov. 27 and the 0.536% slide during the week ended Nov. 20.

For the year to date, gaining weeks still outnumber the decliners, though not by very much – a 25-to-23 margin.

The index’s year-to-date return figure moved further into the red, showing a cumulative loss of 2.351% on Friday, versus the previous week’s 2.279% cumulative deficit.

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 8.142% from 8.062% the Friday before.

However, 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 remained at 644 basis points, unchanged on the week, although that was wider than the 637 bps seen in the Nov. 20 week. Those levels were still in from the year’s widest level of 685 bps on Oct. 2. However, all of those October and November 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.

Its average price of the bonds tracked by the index fell to 91.264343 from 91.38477 the week before. Friday’s level constituted a new low price for the year, besting the previous 2015 low of 91.320236, which was set on Nov. 24.

The price had ended 2014 at 98.8747, while its high for this year was 101.3272, set on Feb. 27.

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