Advantage Data: Coal mining shows rare gain as junk major sectors extend advance

By Paul Deckelman

New York, April 27 – The junk market was higher for a sixth straight week last week, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

That recent upturn has more than made up for a two-week slump in early March, which in turn had followed six consecutive weeks of gains before that.

Last week’s upturn was the 13th recorded so far this year, against three weeks on the downside.

A subset of the 30 most significantly sized sectors (out of the total of 59 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 23 of those more sizable sectors closing in the black during the week ended Friday, with six sectors ending in the red and one sector unchanged, showing neither a gain nor a loss on the week.

That represented a mild pullback from the pattern seen over the three previous weeks – April 3, April 10 and April 17 – in which 27 sectors had shown gains and just three sectors had shown losses in each of those weeks, although different sectors were involved in the losses each week.

In the latest week, coal mining – usually among the worst-performing sectors in any given week – made a rare show of strength, turning in the best performance of any of those large-sized sectors, while paper manufacturing was the biggest loser.

However, on a year-to-date basis, coal, despite its strong weekly showing, remained trapped at the very bottom of the mineshaft for a 15th consecutive week. Lodging, meanwhile, continued to occupy the penthouse as the best cumulative performer for an eighth straight week.

Index adds to gains

Other statistical indicators of general market performance, meanwhile, were mixed last week versus where they had finished out the previous Friday for a second successive week, after having been higher across the board for three straight Fridays before that.

But the Merrill Lynch High Yield Master II index posted its sixth straight weekly gain.

It rose by 0.243% on the week as of Friday’s close, versus the previous week’s 0.227% advance.

The index’s year-to-date return so far as of Friday had risen to 3.897%, versus 3.645% at the end of the previous week. Friday’s finish represented a new peak level for the year so far.

The index had finished 2014 returning 2.503%.

Among its other components, Friday’s yield to worst stood at 5.869%, in from 5.939% a week earlier, although it still remained above the 5.843% seen on Feb. 27, its low for the year. However, the yield was well below its 2014 year-end 6.448% level.

The index’s spread to worst over comparable Treasury issues stood at 468 basis points, having tightened from the previous week’s 477 bps level. It was still wider than the 451 bps recorded on March 2 and again on March 3, its tightest spreads for the year so far, but it was well in from the 513 bps reading seen on the last day of 2014.

Coal climbs on week

Back on a sector-by-sector basis, Advantage Data meanwhile showed the coal mining grouping posting the best performance by any of the significantly sized sectors, returning 2.19%; one possible factor was market reaction to comments made by executives from a key sector name, Peabody Energy Corp., on the company’s quarterly conference call. They raised the possibility of further asset sales or the possible formation of a master limited partnership structure, overshadowing the news of a wider quarterly loss.

It was a rare show of strength by the coal miners, which had spent the previous three straight weeks, and six weeks out of the prior seven, on the Bottom Five list of the worst-performing significantly sized sectors; during the previous week, ended April 17, it had been the single worst-performing such sector, with a 1.30% loss.

Other large-sized sectors also showing strength this past week included metals mining (up 1.21%), industrial machinery and computer manufacturing (up 0.48%), oil and natural gas exploration and production (up 0.47%) and food manufacturing (up 0.45%).

Metals mining made the Top Five list of the week’s best-performing large-sized sectors for a second straight time; it had, in fact, been the single best performer the week before, when it had surged by 2.46%.

The oil and gas sector made it three weeks in a row among the Top Five, having been there the week before with a 1.77% gain, and having actually led all of the large-sized sectors the week before that, ended April 10, when the sector gained 2.28%.

Food manufacturing, on the other hand, had been among the Bottom Five the week before, with an anemic 0.10% return in an otherwise considerably stronger week for most of the other sectors.

Paper sector shredded

On the downside, the paper manufacturing sector was the single worst performer among the major-sized sectors, losing 0.24% on the week.

Other sectors ending in the red included food stores (down 0.18%), the automotive services and insurance carriers sectors, each of which ended down 0.09%, and building construction (down 0.05%).

None of this past week’s Bottom Five sectors had been there the week before, nor had any of them been among the Top Five performers in that previous week, either.

YTD: Lodging again on top

On a year-to-date basis, the lodging sector (up 7.64%) was the best cumulative performer for an eighth consecutive week.

Petroleum refining (up 6.60%) moved up by one notch in the rankings into the runner-up slot for the second time in the last three weeks, once again trading places with the previous Number-Two, food stores (up 6.43%), which fell to just third-best, also for a second time within the last three weeks; the two sectors have been alternating in the second and third positions for the past four weeks now.

Oil and gas E&P (up 5.13%) improved to fourth-best, despite not having been among the best year-to-date sectors the previous week.

Its ascension pushed depository financial institutions (up 4.51%) down by one position, to just fifth-best, after having been the fourth-strongest on the year over the previous two weeks.

Coal stays at the bottom

On the downside, coal mining remained the worst finisher year to-date for a 15th straight week, with a 5.49% cumulative loss.

For a second consecutive week, all of the other year-to-date underperformers held the same positions, relative to one another, which they had occupied the week before.

Securities and commodities brokers, dealers and exchanges (down 0.48%) was again the second-worst sector on the year and along with coal, the only other significantly sized sector in negative territory.

Metals mining (up 1.31%) remained as third-worst on the year so far.

Transportation equipment manufacturing (up 1.75%) stayed on as fourth-worst on the year.

And wholesale durable goods distributors (up 2.44%) continued as the fifth-worst major sector year to date and has now been fifth-worst in three weeks out of the last four.

© 2015 Prospect News.
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