Advantage Data: High-yield market posts second straight weekly gain, led by insurers

By Paul Deckelman

New York, Sept. 8 – The junk bond market moved up for a second consecutive week last week, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Tuesday by Advantage Data Inc.

Last week’s gain and the advance seen the previous week, ended Aug. 28, had followed three straight weeks before that on the slide.

The gains seem to have renewed the recent pattern of choppiness seen in Junkbondland following the end of a long winning streak in early May. Since then, the market has experienced periods of a week or two of gains, alternating with one or more weeks of losses.

But things have been more negative than positive of late, with junk still showing losses now in four weeks out of the last seven and in six weeks out of the last 11.

On a somewhat longer-term basis, however, with 35 weeks now in the books so far this year, last week’s gain was the 22nd weekly advance seen during that time, versus 13 weeks on the downside.

Indicators mixed, index up

Other statistical indicators of general junk market performance turned mixed from where they had been the previous Friday, after having been higher across the board the previous week and lower all around for three straight weeks before that.

The Merrill Lynch High Yield Master II index, meanwhile, posted its second consecutive week on the upside after three straight weeks before that in the loss column, which, in turn, had followed the index having pulled out of an extended slump during the July 31 week.

It also got back into the black on a year-to-date basis, after having been in the red over the previous two weeks, when it had approached – or even hit – its worst levels for the year in several index categories.

Even with the latest upturn, the widely followed index has still now been down Friday-to-Friday in seven weeks out of the last 11 and, on a longer-term basis, in 10 weeks out of the prior 16.

Unusually, for a second week in a row, it gained 0.276% for the week, after having lost 0.764% during the week ended Aug. 21, on top of downturns of 0.596% during the week ended Aug. 14 and a plunge of 0.802% during the week ended Aug. 7. That latter fall had been one of the largest retreats seen so far this year, exceeded only by its 1.01% nosedive during the week ended July 24, its biggest weekly loss of the year.

But the latest weekly gain – its 21st since the start of the year, versus 14 downturns – put the index’s year-to-date return back in positive territory, as it was up by 0.227% on the week, versus the previous week’s cumulative loss of 0.048%.

The index showed a 1.136% cumulative deficit on Aug. 24, its worst level for the year and, in fact, the biggest cumulative loss seen since Oct. 11, 2011, when it had been in the red by 1.745%. Its peak gain for this year 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 fallen to 7.277% from 7.372% the Friday before and from 7.641% on Aug. 13, its highest point for the year so far. 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 tightened to 581 basis points from 587 bps the Friday before and from its widest level for the year so far, 625 bps on Aug. 24. All of 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 bonds tracked by the index rose to 95.21596 from 94.81955 on the previous Friday and up as well from its low for the year of 93.896, set on Aug. 24. It had ended 2014 at 98.8747, while its high for this year was 101.3272, set on Feb. 27.

Insurers show improvement

Back on a sector-by-sector basis, Advantage Data meanwhile showed the insurance carriers sector having posted the best results of any of the large-sized industry groupings, gaining 0.51% on the week.

The insurers have actually been the best-performing large-sized sector now in two weeks out of the last three, having also dominated the charts during the week ended Aug. 21, when they gained 0.40%.

Also showing strength were telecommunications (up 0.37%), automotive services (up 0.33%), securities and commodities brokers, dealers and exchanges (up 0.32%) and miscellaneous retailers (up 0.31%).

None of those sectors had been among the leaders – or the big losers, for that matter – during the week ended Aug. 28.

Electronics makers weakest

On the downside, non-computer electronics manufacturers had the worst performance of any large-sized sector last week, losing 0.53%.

The electronics makers thus displaced coal mining (down 0.43% on the week) from that unwanted honor; up through the week ended Aug. 28, when the sector recorded a 1.08% loss, the coal miners had been at the very bottom of the pile for four consecutive weeks and for nine weeks out of the previous 10 – a losing streak temporarily interrupted by coal’s improbable jump during the week 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 before returning to its customary last-place position the following week.

On a somewhat longer-term basis, coal had also held that unenviable distinction in 16 weeks out of the prior 18 – a skid additionally interrupted only by a similar worst-to-first journey during the week ended June 19 – and over 17 weeks out of the previous 20.

Additionally, coal has now been among the Bottom Five worst-performing large sectors for a given week – usually as the absolute worst finisher but other times not – in 20 weeks out of the last 23 and in 23 weeks out of the last 27.

Other key sectors showing notable losses last week included metals mining (down 0.38%), industrial and commercial machinery and computer manufacturing (down 0.26%) and petroleum refining (down 0.15%).

The metals miners have now been among the Bottom Five underperformers in four weeks out of the last five, in five weeks out of the last seven and in nine weeks out of the last 11.

The machinery and computer manufacturers have now been among the Bottom Five in in two weeks out of the last three.

YTD: Lodging still on top

On a year-to-date basis, the lodging sector was the best cumulative performer for a 27th consecutive week, with a gain of 19.63% for the year so far.

The food stores grouping (up 8.67%) was in the runner-up spot for a 16th straight week and for a 17th week in the last 18.

Holding companies and other investment offices (up 4.63%) were third-best for a sixth successive week, and have now been in third place for 12 weeks out of the last 13.

Food manufacturing (up 4.36%) was fourth-best for a second straight week and for three weeks out of the last four.

It was in an exact tie with health care, which was also up by 4.36%, improving one notch from just fifth-best the week before.

None of the week’s leaders were also among the year-to-date front-runners.

YTD: Coal still buried

On the downside, coal mining continued to languish at the bottom of the pile as the worst year-to-date performer for a 34th straight week, showing a 31.11% year-to-date loss.

Oil and natural gas exploration and production companies were second-worst on the year for a third successive week, with a negative return of 9.83%.

Metals mining (down 7.68%) was third-worst, also for a third consecutive week.

Primary metals processing (down 1.81%) was fourth-worst on the year so far for a second week in a row.

Industrial and commercial machinery and computer makers and wholesale durable goods distributors both fell to fifth-worst on the year, each posting a meager 0.28% year-to-date gain, despite having not been among the worst underachievers the preceding week.

However, the machinery and computer makers have been fifth-worst now in two weeks out of the last three.

They, along with coal mining and metals mining were among the week’s worst finishers, as noted.

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