Advantage Data: Rebound in energy paper helps junk market sectors to break two-week losing streak

By Paul Deckelman

New York, Dec. 22 – A sharp rebound in the performance of bonds issued by oil and natural gas exploration and production companies helped to lead the overall junk market higher last week, breaking a two-week losing streak, according to sector-tabulated weekly bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Before that upturn, the overall market had also been lower in four of the past five weeks.

Out of the 58 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 32 finished in the black during the week ended Friday, with 26 closing in the red.

While not an overwhelmingly positive surge, that still represented a clear comeback from the week before, ended Dec. 12, when 57 of the sectors had showed losses, with only one posting a gain – little changed from the result the week before that, ended Dec. 5, when 56 of the sectors had ended as losers, just one showed a gain and the remaining sector was unchanged on the week, notching neither a gain or a loss.

A majority of the sectors have now been on the plus side in 36 weeks out of the 51 so far this year, versus 15 weeks in which more sectors were down than up, although the negative weeks have been more numerous over the course of the last few months. At one point earlier in the year, from mid-March to early July, there had been a streak of 16 consecutive upside weeks.

A subset of just the 30 most significantly sized sectors, as measured by the number of bond issuers, the collective number of issues tracked and their total face amount outstanding, recovered this past week along with the broader market, after having plunged for two straight weeks before that.

Some 18 of those more substantial sectors closed in the black this past week, with a dozen sectors in the red.

That stood in contrast to the week before, when 29 of those larger sectors had shown losses, against just one gain – a continuation of the pattern of weakness seen the week before that, when all 30 of those sectors had been in negative territory, with no positives.

On a year-to-date basis, those significantly sized sectors have now mostly shown gains in 36 weeks out of 51 since the start of the year, versus 15 downturns, the same as the broader market.

In the latest week, the energy E&P sector decisively led the market higher – partially reversing its huge nosedive the week before – as world crude oil prices seemed to steady from their recent plunge, at least temporarily, and market players covered shorts in the recently badly battered bonds.

Another positive factor pushing up the energy bonds, and other junk issues as well this past week, was an overall financial market upturn after the Federal Reserve indicated that it would be in no great hurry to raise interest rates in 2015, but rather would be “patient” as it methodically analyzes economic data.

Bonds of metals-mining companies were the biggest losers this past week among those key sectors.

For the year to date so far, food stores moved into the lead, while coal mining continued as the year-to-date cellar-dweller.

Index makes a comeback

Other statistical indicators of general market performance meanwhile turned higher across the board this past week versus where they had finished out the week before, after having spent the two previous weeks on the downside.

The Merrill Lynch High Yield Master II index led the way upward, jumping by 1.055% – one of the largest weekly gains seen so far this year, only slightly less than the 1.057% surge seen during the week ended Aug. 15.

During the previous week, ended Dec. 12, the index had swooned by 2.094% on the week – its largest weekly decline so far this year, eclipsing the 1.419% plunge recorded during the week ended Aug. 1, and one of the biggest weekly downturns on record.

The index has now seen 34 weekly gains in 2014 against 17 losses, including a winning streak of 14 straight weekly advances that started during the week ended March 21 but which was snapped during the week ended June 27.

As of Friday, its year-to-date return had risen to 1.911%, up from 0.847% a week earlier, and up as well from its low point for the year, the 0.258% cumulative loss recorded this past Tuesday, although it remained well down from its peak level for the year of 5.847%, posted on Sept. 1.

Among the index’s other components, Friday’s yield to worst stood at 6.778%, down from 7.006% the week before and down as well from its high point for the year of 7.259%, set this past Tuesday. All of those elevated yields stood in contrast to the 4.847% notched on June 24, which was both its low point for this year and its all-time low.

Its spread to worst over comparable Treasury issues stood at 525 basis points on Friday, having come in from 554 bps the week before, and from 576 bps this past Tuesday, its widest level for the year. But it remained well up from the 353 bps seen on June 23, its tightest spread for the year to date.

Energy improvement eyed

Back on a sector-by-sector basis, Advantage Data meanwhile showed the oil & gas E&P sector (up 1.66%) doing the best among any significantly sized sector.

The oilers thus managed the relatively unusual feat of having gone from worst to first. The week before, energy had clearly been the absolute worst-performing large sector, having nosedived by 5.25% – the group’s seventh consecutive week among the worst finishers and the second time in three weeks that it had the biggest loss.

Other sectors showing strength this past week included health care (up 1.59%), telecommunications (up 1.19%), miscellaneous retailing (up 0.89%), and the chemical manufacturing and food stores sectors, each of which was up by 0.78% on the week. None of those had either been among either the Top Five best-performing sectors or the Bottom Five worst performers the week before.

On the downside, metals mining fell by 1.11%, clearly the biggest loss of any of the significantly sized sectors.

Also showing weakness were holding companies and other investment offices (down 0.52%), coal mining (down 0.46%), lodging (down 0.34%) and building construction (down 0.22%).

It was coal’s fifth successive week among the worst finishers, having also been there the week before with a 4.58% deficit, and the second straight week there for lodging, which had lost 2.65% the previous week.

Food stores tops year to date

With 51 weeks in the books for 2014 so far, the food stores sector – one of the week’s best performers, as noted – moved into the top spot on a year-to-date basis with a 9.42% cumulative return, despite having not been among the year-to-date leaders the previous week.

It thus displaced paper manufacturing (up 8.82%), which before that had been the cumulative champ for three straight weeks, for nine weeks out of the prior 10 and for 12 weeks out of the previous 15.

The papermakers’ one-position fall to just second-best from first also pushed real estate (up 8.38%) down one notch to just third-best; the group had been the runner-up the week before.

And the previous week’s third-best finisher, printing and publishing (7.38%), fell by one slot as well, to just fourth-best, although that’s a familiar position for the printers, having now been there in five weeks out of the last seven.

Health care – also one of the week’s best, as noted – improved to fifth-best with a 6.87% return for the year, despite having not been among the leaders the previous week.

Coal still crushed

On the downside, coal mining (down 14.45%) was by far the worst cumulative performer for a third straight week.

Coal has been the year-to-date bottom-finisher for most of 2014, at one point having the worst cumulative return for 23 consecutive weeks and 27 weeks out of 28, until that skid was broken by the lodging sector during the week ended Aug. 15.

In the 18 weeks since then, the two sectors have alternated, with each down at the very bottom for nine of those weeks.

Lodging (down 6.20%) was back in its familiar position as second-worst for the eighth time in the last 18 weeks; the week before, the sector had put on a rare show of strength and had improved, relatively speaking, to just third-worst – the only time since the week ended Aug. 15 that it has not been either the worst year-to-date grouping or the second-worst, as coal has been.

Metals mining (down 5.82%), second-worst on the year the week before and, as noted, this past week’s worst large-sized sector, returned to its own familiar position of third-worst on the year, where it has now been in eight weeks out of the last nine.

The oil and gas E&P segment – despite having been the week’s best-performing key sector, as noted – remained as fourth-worst year to date for a seventh straight week with a 2.98% loss.

Holding companies and other investment offices (up a sedate 2.22%) was the fifth-worst sector on a cumulative return basis for a third straight week.

© 2015 Prospect News.
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