Advantage Data: Junk sectors nosedive after evenly split week and three straight weekly gains

By Paul Deckelman

New York, Sept. 28 – The junk bond market was broadly lower last week, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

That followed one week in which the sectors had been evenly split between gainers and losers and three consecutive weeks before that during which more sectors advanced than retreated – which, in turn, had followed three straight weeks when more of those market groupings were on the downside than on the upside.

Generally speaking, Junkbondland has been choppy ever since the end of a long winning streak in early May, with the market experiencing periods of a week or two of gains alternating with a couple of weeks of losses.

Over the last 10 weeks, going back to the week ended July 24, more sectors have been worse in five of those weeks, more have been better in four of them and as noted, and they were evenly split in one week.

Things have been more positive on a somewhat longer-term basis; with 38 weeks now in the books so far this year, 23 weekly advances have been seen during that time, versus 14 weeks on the downside and the aforementioned even split during the week ended Sept. 18.

A subset of the 30 most significantly sized sectors (out of the total of 60 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 26 of those more sizable sectors closing in the red during the week ended Friday, with only three finishing in the black and one sector ending the week with a flat 0.00% reading, indicating neither a gain nor a loss.

That was in sharp contrast versus the Sept. 18 week, when 14 of the larger sectors showed gains on the week, 14 showed losses and two sectors were unchanged.

The week before that, ended Sept. 11, 28 of those key sectors ended in positive territory and just two closed in negative territory.

Among specific sectors last week, coal mining was in its usual position as the worst-performing major sector for a second straight week and not surprisingly, also remained easily the worst-performing sector on a year-to-date basis, its 37th consecutive week as the year-to-date cellar-dweller.

Automotive services was the week’s best performer.

Lodging meantime remained booked into the penthouse suite as the best year-to-date performer among the major sectors for a 30th straight week.

Indicators, index turn lower

Other statistical indicators of general junk market performance were lower all around last week from where they had been the previous Friday for a second straight week, after having been higher across the board the previous week for a second week out of three, interrupted by one mixed week. The indicators were universally lower for three straight weeks before that.

The Merrill Lynch High Yield Master II index, meanwhile, suffered its second consecutive weekly loss after three straight weeks before that on the upside. Those three winning weeks had followed three successive 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 plunged by 1.445% last week – its biggest weekly loss for the year so far, surpassing the 1.01% retreat seen the week ended July 24, the previous largest weekly loss for the year. It had also lost 0.136% during the Sept. 18 week.

It was the third weekly loss for the widely followed index in the last six weeks and its fifth weekly downturn in the last eight weeks.

On a somewhat longer-term basis, it has now been down on a Friday-to-Friday basis in nine weeks out of the last 14 and in 12 weeks out of the prior 19. However, for the year to date, gaining weeks still outnumbered the decliners by a 22-to-16 margin.

The latest loss sent the index’s year-to-date return back into the red to the tune of 1.312% – its worst cumulative loss for the year, surpassing the 1.136% year-to-date loss recorded on Aug. 24. The year-to-date loss seen Friday was the index’s biggest cumulative loss seen since Oct. 11, 2011, when it had showed a 1.745% loss for the year.

Those losses were in contrast to the 0.135% gain on the year seen for the week ended Sept. 18.

Its peak gain for this year, meanwhile, 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 risen to 7.677% from 7.298% the Friday before. This past Friday’s yield thus became the highest seen so far this year, eclipsing the previous high point of 7.641% on Aug. 13. 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 widened to 620 basis points from 587 bps the Friday before, although it was still in a little 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 fell to 93.33201 – a new low level for the year – from 94.86353 the previous Friday. The previous 2015 low had been 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.

Coal stays in the hole

Back on a sector-by-sector basis, Advantage Data meanwhile showed the coal mining sector (down 7.82%) was once again the worst-performing large sector on a weekly basis for a second straight week. It had also lost 3.46% the week ended Sept. 18 – after improbably having been the best performer the week before, ended Sept. 11, when it posted a 2.05% gain. The sector thus traveled from first-to-worst in the space of the week – a trip that the volatile sector has made several times so far this year.

Coal has now been the absolute worst finisher among the large-sized sectors in six weeks out of the last eight.

On a somewhat longer-term basis, coal has now been among the Bottom Five worst-performing sectors – sometimes as the week’s absolute worst finisher, other times not – in 22 weeks out of the last 26, and in 25 weeks out of the last 30, and has been the worst of the worst in 11 weeks out of the last 13 and in 19 weeks out of the last 22.

Other key sectors showing notable losses last week included oil and natural gas exploration and production (down 3.99%), primary metals processing (down 2.95%), chemical manufacturing (down an even 2.00%) and transportation equipment manufacturing (down 1.89%).

The oil and gas and metals processing sectors have both been among the Bottom Five for two straight weeks now, having also posted losses of 2.12% and 0.42% the week before.

Auto services parked on top

On the upside, automotive services, chiefly consisting of vehicle-rental companies, had the best showing of any of the major sectors on the week, having gained 0.28%.

Other major sectors showing relative strength last week included food stores (up 0.10%) and real estate (up 0.04%). It was real estate’s second straight week among the Top Five best-performing key sectors, having also been there the previous week with a 0.24% gain.

With only three large-sized sectors out of 30 actually finishing in the black this week, as noted, the Top Five was filled out by financial brokers, dealers and exchanges (unchanged on the week) and building construction (down 0.32%, the smallest loss among the major-sized sectors).

It was the brokers and dealers’ second time among the elite finishers in the last four weeks, and construction’s second time there in the last three weeks.

YTD: Lodging still on top

On a year-to-date basis, both the leading five key sectors – and the five worst sectors – were unchanged last week, in terms of their relative positions against one another from the week before.

Among the leaders, the lodging sector was the best cumulative performer for a 30th consecutive week, with a gain of 22.33% for the year so far.

The food stores grouping (up 7.30%) was in the runner-up spot for a 19th straight week and for a 20th week in the last 21.

Holding companies and other investment offices (up 4.65%) were third-best for a second week in a row and have now held that position in eight weeks out of the last nine, and in 14 weeks out of the last 16.

Depository financial institutions (up 4.41%) were fourth-strongest on the year so far for a second successive week.

Health care (up 4.29%) was fifth-best for a third straight week and for the fourth week in the last five.

The food stores sector was also among the week’s best finishers, as noted.

YTD: Coal still buried

On the downside, coal mining continued to wallow at the bottom of the pile as the worst year-to-date performer for a 37th straight week, showing a 31.18% year-to-date loss.

Oil and gas E&P companies were second-worst on the year for a sixth successive week, with a negative return of 11.52%.

Metals mining (down 6.80%) was third-worst, also for a sixth consecutive week.

Primary metals processing (down 3.47%) was fourth-worst on the year so far for a fifth week in a row.

Paper manufacturing (down 0.86%) was fifth-worst on the year for a second straight week.

Coal mining, oil and gas and primary metals processing were also among the week’s worst finishers, as noted.

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