Advantage Data: Recently choppy market falls again as coal, oil and gas, metals extend big losses

By Paul Deckelman

New York, Aug. 17 – The junk bond market continued to retreat last week, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

The downturn deepened the losses across most sectors which had been seen the week before, ended Aug. 7, which, in turn, had stood in contrast to a solid upturn the week before that, ended July 31.

Junk bonds have now been down in three weeks out of the last four, in five weeks out of the last seven and in six weeks out of the last 10.

Since ending a long winning streak in early May, the market has been streaky over the last three months, alternating bursts of a week or two of consecutive gains with a roughly equal number of successive weekly losses.

On a somewhat longer-term basis, with 32 weeks now in the books so far this year, last week’s loss was the 12th weekly setback seen during that time, versus 20 weeks on the upside.

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 28 of those more sizable sectors closing in the red during the week ended Friday, with only two finishing in the black.

That deepened the negative trend seen the week before, when 20 sectors had posted losses and 10 sectors had reported gains.

Both of those weeks stood in sharp contrast to the week ended July 31, when 25 sectors had ended in positive territory, four had finished with negative results and one other sector ended the week unchanged, showing neither a gain nor a loss.

Among specific sectors, the coal mining sector was in its usual position as the worst-performing large sector on the week for a second straight week, and not surprisingly, also remained easily the worst-performing sector on a year-to-date basis, its 31st consecutive week as the year-to-date cellar-dweller.

On the upside, the automotive services and securities and commodities brokers, dealers and exchanges sectors were the only two of those larger-sized sectors to actually show gains on the week, however small.

Lodging meantime continued to hold sway as the best year-to-date performer among the major sectors for a 24th straight week.

Volatile index loses ground

Other statistical indicators of general junk market performance ended the week lower across the board from where they had been the previous Friday for a second straight week, after having been higher all around during the week ended July 31, which had been the first such upside showing since the week ended May 29. The two months in between had seen those indicators closing either down for the week, as they have now done in five weeks out of the last seven, or mixed at best, each alternating for a week or two.

The struggling Merrill Lynch High Yield Master II index posted its second straight week on the downside after having pulled out an extended slump during the July 31 week, and hit its worst levels for the year in several index categories.

The widely followed index has now been down week over week in six weeks out of the last eight and, on a longer-term basis, in nine weeks out of the prior 13.

It lost 0.596% last week, on top of the previous week’s 0.802% retreat, which had been one of the largest seen so far this year, exceeded only by its 1.01% plunge during the week ended July 24, its biggest weekly loss of the year.

The latest weekly loss – its 13th since the start of the year, versus 19 upturns – lowered the index’s year-to-date return to 0.444% on Friday from 1.863% the week before. On Wednesday of last week, the index had gone as low as 0.254% on the year, its lowest year-to-date reading since the 0.203% recorded back on Jan. 22, 2015.

All of those year-to-date returns remained well down from 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 7.123% from 7.118% the Friday before. On Thursday, the yield had spiked up to its new high point of the year so far, 7.641%, up from the previous high of 7.328% on Wednesday. Its low point for the year so far, meanwhile, has been 5.843%, seen on Feb. 27. The yield had ended 2014 at 6.448%.

Its spread to worst over comparable Treasury issues rose to 589 basis points from the previous Friday’s 560 bps. It established a new wide point for the year on Thursday at 612 bps, up from the previous wide of 586 bps set on Wednesday. Those 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.

And its average price of the components fell to 95.558 on Friday, down from the previous Friday’s 96.26659. On Wednesday, it had set a new low for the year at 95.4045, down from the previous low of 95.764122, set on Tuesday. It had ended 2014 at 98.8747, and its high for this year was 101.3272, set on Feb. 27.

Coal continues to crumble

Back on a sector-by-sector basis, Advantage Data meanwhile showed coal mining retaining its usual status as the worst-performing large-sized sector for a second consecutive week, losing 3.02%, on top of the previous week’s 6.11% plunge.

Both of those big losses were in sharp contrast to the week before that, ended July 31, when the volatile sector had been in the unaccustomed position of the best-performing significantly sized grouping, returning 0.86% for the week.

The week before that one, ended July 24, it had also been the worst large-sized sector, swooning by 4.91% – so coal thus went from worst that week, to first the following week, and then back to worst the next week.

All told, coal has now been the absolute worst-performing large-sized sector for seven weeks out of the last eight and has held that unenviable distinction in 14 weeks out of the last 16 – a losing streak interrupted only by a similar worst-to-first journey during the week ended June 19 – and over 15 weeks out of the last 18.

Coal has now also been among the Bottom Five worst-performing large sectors for a given week – sometimes as the absolute worst finisher, other times not – in 16 weeks out of the last 20 and in 20 weeks out of the last 24.

Other key sectors showing notable losses last week included oil and natural gas exploration and production (down 2.14%), primary metals processing (down 1.55%), metals mining (down 1.28%) and transportation equipment manufacturing (down 1.13%).

Like coal, oil and gas was down for a second straight week, having slid by 3.45% in the week ended Aug. 7, and has also most recently been seen more often among the worst performers than the best, although it too had been among the strongest performers during the July 31 week, when it returned 0.65%. But the energy credits have now been among the Bottom Five in eight weeks out of the last nine.

Metals mining was also among the Bottom Five the previous week as well, when it lost 1.85% and has now been among the big losers in three weeks out of the last four and in seven weeks out of the last eight.

Neither primary metals processing nor transportation equipment manufacturing were among the worst losers the previous week.

Auto services show gains

On the upside, there wasn’t much positive going on last week.

Automotive services – chiefly meaning car-rental companies – was up by 0.10%, while securities and commodities brokers, dealers and exchanges edged upward by 0.06%.

They were the only two large-sized sectors actually ending in the black last week.

The Top Five list of the week’s best-performing large-sized sectors thus was filled out last week by sectors whose losses were miniscule compared with the downturns that other sectors suffered last week.

These included holding companies and other investment offices (down 0.12%) and the food manufacturing and real estate sectors, both of which had eased by 0.19%.

None of the week’s Top Five performers had been there the previous week.

YTD: Lodging still on top

On a year-to-date basis, the lodging sector was the best cumulative performer for a 24th consecutive week, with a 22.32% gain for the year so far.

The food stores grouping (up 8.66%) was in the runner-up spot for a 13th straight week and for a 14th week in the last 15.

Holding companies and other investment offices (up 5.94%) were third-best for a third successive week, and have now been in third place for nine weeks out of the last 10.

Food manufacturing (up 4.66%) moved up by one notch in the standings, to fourth-best, after having been in a tie for fifth the previous week with amusement and recreation services.

Real estate (up 4.16%) improved to fifth-best on the year, despite not having been among the cumulative leaders the week before.

As noted, the holding companies, food manufacturing and real estate sectors had also been among the week’s Top Five finishers.

YTD: Coal still buried

On the downside, coal mining – the week’s worst performer, as noted – continued to languish at the bottom of the pile as the worst year-to-date performer as well for a 31st straight week, showing a 34.87% year-to-date loss.

The metals mining sector – also one of the week’s worst performers – was second-worst on the year for a sixth straight week with a cumulative loss of 6.55%.

Oil and gas E&Ps – another of the week’s underachievers, as noted – were third-worst on the year for a fourth straight week, with a negative return of 6.24%, and have now been among the year’s worst laggards for five weeks out of the last six.

Transportation equipment manufacturing (down 0.22%), also in the week’s Bottom Five, was fourth-worst on the year for a second week in a row and for four weeks out of the last five.

Last week was the first week since the week ended Jan. 30, 2015 that as many as four key sectors were in the red for the year.

Wholesale durable goods distributors (up 0.71%) tumbled to fifth-worst on the year, despite not having been among the worst cumulative performers the week before.

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