Advantage Data: Coal crumbles as junk market heads lower, insurance gains modestly

By Paul Deckelman

New York, July 6 – The junk bond market moved lower last week after two straight weeks before that during which it had edged narrowly higher, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News by Advantage Data Inc.

It was the market’s third such loss in the past five weeks.

Showing high yield’s recently streaky nature, that now-ended two-week advance had followed a two-week slump, which itself followed a three-week upturn that came after a two-week skid. That setback, in turn, had halted a six-week winning streak dating back to mid-March.

With 26 weeks now in the books so far this year, last week’s loss marked eight weekly retreats recorded this year, versus 18 weeks on the upside.

A subset of the 30 most significantly sized sectors (out of the total of 58 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 22 of those more sizable sectors closing in the red during the week ended Friday, with just seven sectors finishing in the black and one sector unchanged, showing neither a gain nor a loss on the week.

That was in contrast with the week before, ended June 26, when 15 sectors had posted gains and 14 showed losses, with one other sector unchanged.

That was almost identical to the breakdown seen the week before that, ended June 19, when 16 sectors were up, and 14 were down.

Among specific sectors, the insurance carriers’ modest gain represented the best weekly showing among those major groupings.

On the downside, coal mining was in its customary position as the bigger loser among the largest sectors.

Not surprisingly, coal remained the worst year-to-date finisher among the big sectors for a 25th successive week, while the lodging sector remained on top year to-date for an 18th week in a row.

Index heads south

Other statistical indicators of general junk market performance ended off last week versus where they had finished out the previous Friday, after having been mixed for two consecutive weeks and lower across the board for two straight weeks before that and in three weeks out of the previous four, a slide interrupted only by the upturn all around during the week ended May 29.

The Merrill Lynch High Yield Master II index thus lost ground last week for a second week in a row after having finished higher during the week ended June 19; it has now been on the downside in four weeks out of the last five, and in five weeks out of the last seven.

The index fell by 0.124% on the week, after having declined by 0.248% the week before.

The latest loss cut its year-to-date return to 2.774% as of Friday – when the index was published, despite the overall market close for Independence Day – down from 2.901% the week before. Those levels, in turn, remained below the 4.062% at which it had ended on May 29, its peak level for the year so far.

The index had finished 2014 returning 2.503%.

Among its other components, Friday’s yield-to-worst had risen to 6.569% from 6.37% the Friday before. While it remained above the 5.843% seen on Feb. 27, its low for the year, the yield was still down from its 2015 peak of 6.86%, reached on Jan. 6, although it topped its 2014 year-end 6.448% level.

Its spread- to-worst over comparable Treasury issues widened to 500 basis points from the previous week’s 475 bps. It was 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 still in from the 550 bps seen on Jan. 5, the widest 2015 reading, as well as the 513 bps seen on the last day of 2014.

Coal stays at the bottom

Back on a sector-by-sector basis, Advantage Data meanwhile showed the coal mining sector on familiar ground for a second straight week, buried at the absolute bottom of the mineshaft with a 3.91% loss, on top of the 3.53% loss seen the week before.

However, the past two weeks have stood in contrast with the week ended June 19, when its 0.83% gain was the best among the large sectors – and that unusual show of strength had followed seven straight weeks during which it had been the absolute worst finisher, culminating with a 5.99% plunge for the week ended June 12.

The volatile sector thus went from worst-to-first in the week ended June 19, only to reverse during the week ended June 26 and travel from first back to worst.

It has been the absolute worst finisher now in nine weeks out of the last 10 and in 10 weeks out of the last 12, as well as having been among the Bottom Five worst-performing large sectors for a given week – sometimes the absolute worst, other times not – in 12 weeks out of the last 14, and in 15 weeks out of the prior 18.

Other sectors showing weakness included metals mining (down 1.28%), oil and natural gas exploration and production (down 0.87%), building construction (down 0.37%) and primary metals processing (down 0.29%).

It was the second consecutive week among the Bottom Five for the metals miners and the third straight week there for the energy E&P grouping, having each also been there during the June 26 week with losses of 0.22% and 0.58%, respectively.

Insurers top gainers

On the upside, the insurance carriers sector had the best performance for the week of any of the significantly sized sectors, as it rose by 0.23%.

Other sectors showing relative strength in the latest week included petroleum refining (up 0.14%), depository financial institutions (up 0.13%), precision instrument manufacturing (up 0.12%) and industrial machinery and computer equipment manufacturing (up 0.05%).

Petroleum refining had also been among the Top Five strongest sectors the week before with a 0.34% gain.

YTD: Lodging stays on top

On a year-to-date basis, the lodging sector (up 18.72%) was the best cumulative performer for an 18th consecutive week.

The food stores grouping (up 8.47%) was in the runner-up spot for a seventh consecutive week and for an eighth week in the last nine.

Holding companies and other investment offices (up 5.64%) were third best on the year so far for a fourth week in a row.

Petroleum refining – one of the week’s better performers, as noted – was in the fourth-strongest year-to-date slot for a second successive week with a 4.83% return

Miscellaneous retailing (up 4.18%) moved up to fifth best on the year after having not been among the previous week’s year-to-date leaders.

Coal in deeper YTD hole

On the downside, coal mining – clearly the week’s worst performer, as noted – continued to do worse on a year-to-date basis as well, showing a 2015 loss so far of 20.67%. It was coal’s 25th straight week at the bottom of the pile.

However, as has been the case for a number of weeks, it was the only significantly sized sector finishing in the red on a cumulative basis.

The securities and commodities brokers, dealers and exchanges sector (up 0.38%) was the second-worst performer so far this year for a third straight week and for a 10th week out of the previous 12.

Transportation equipment manufacturing (up 0.85%) was the third-worst major sector on the year for a third straight week, as well as in five weeks out of the last six and in seven weeks out of the last nine.

Wholesale durable goods distributors (up 1.75%) weakened to fourth worst on the year, despite not having been among the worst year-to-date laggards the week before.

Real estate (up 1.86%) was fifth worst on the year for a second consecutive week.

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