Advantage Data: Junk bond sectors plunged last week after four straight gains

By Paul Deckelman

New York, Aug. 14 – The junk bond market turned decisively southward last week, ended Aug. 11, after four consecutive weeks of gains before that, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

It was the first loss the sectors had seen since the week ended July 7.

And it was a return to the pattern of choppiness seen earlier in the summer; while the previous four weeks had seen strength, the several weeks before saw gains and setbacks alternating ever since a loss during the week ended June 23, which had snapped a five-week winning streak.

Last week marked the third losing week for the sectors out of the last 10 weeks, dating back to the week ended June 9, versus seven positive weeks during that stretch.

However, for the year to date, a majority of the sectors have finished on the plus side in 25 weeks so far, while negative results have dominated in seven weeks to date.

A subset consisting of the 33 largest 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 31 of those sectors ending in the red last week, with only two finishing in the black.

That stood in stark contrast to the pattern seen the week before, ended Aug. 4, when 24 of the large-sized sectors had posted gains that week, versus nine which had shown losses.

Among specific large-sized sectors during the week ended Aug. 11, non-computer electrical and electronics manufacturing suffered the worst loss on the week, while automotive services and real estate were the only two sectors not posting losses.

On a year-to-date basis, with 32 weeks of 2017 now in the books, lodging held the top spot on a cumulative basis for a third straight week, while food stores was the worst performer for the year so far, also for a third week in a row.

Electronics makers mauled

Electrical and electronics manufacturing other than computers had the worst loss of any major sector, swooning by 2.19% on the week.

Other key sectors posting sizable losses included Food stores (down 1.61%), energy exploration and production (down 1.51%), oil and natural gas extraction (down 1.43%) and telecommunications (down 1.11%).

It was the second straight week that the oil and gas extraction sector was finishing among the Bottom Five worst-performing large-sized sectors, having also had that dubious honor during the Aug. 4 week with a 0.23% loss.

And it was the fifth consecutive week the food stores have been part of the Bottom Five, and their seventh week out of the last eight there, dating back to the week ended June 16. During the Aug. 4 week, the grocers lost 0.59%.

And the grouping has been the single worst-performing sector in two weeks out of its five straight weeks among the Bottom Five and in three weeks out of its eight weeks there, posting unsurpassed losses of 1.03% during the week ended July 28, of 0.05% during the week ended July 14 – a week when virtually all other major sectors were positing gains – and of 1.53% during the June 16 week.

Autos, real estate lead

On the upside, such as it was, the automotive services sector and real estate were the only two key sectors actually posting gains during the week – an unimpressive 0.07% for each of them.

Accordingly, last week’s Top Five list of the best-performing large-sized sectors was filled out by groupings merely showing smaller losses than everyone else – paper manufacturing (down 0.02%), non-depository credit institutions (down 0.07%) and precision instrument manufacturing (down 0.14%).

For co-leader automotive services, it was an unusual case of having gone from worst to first.

During the Aug. 4 week, automotive services – a sector that includes vehicle-rental companies – had the worst loss of any large-sized sector, swooning by 1.78%.

That downturn the previous week had coincided with a fall in Hertz Corp. bonds across the company’s capital structure after the Estero, Fla.-based rent-a-car giant said that it had decided to scrap its planned redemption of its $450 million of outstanding 6¾% senior notes due 2019, saying in an 8-K filing with the Securities and Exchange Commission on July 28 that the conditions to the redemption had not been met.

Traders theorized that last week that the bonds snapped back after having been oversold the week before.

Lodging stays on top for year

On a year-to-date basis so far, the lodging sector was the best performer for a third straight week and for its seventh week out of the last eight, with a 10.79% cumulative gain last week.

Chemical manufacturing, including pharmaceuticals, moved up two notches in the rankings to the runner-up slot from fourth-best the previous week, with a 9.14% gain on the year. It has now been second-best in two out of the last three weeks.

Depository financials services (up 7.52%) also improved by two slots, to third-best, after spending the previous two weeks as the fifth-best sector.

Amusement and recreational services (7.21%) fell by one rung to just fourth-best on the year from third-best the previous week’ it has now been in the Number-Four position in two weeks out of the last three.

And building construction, not recently among the leaders, improved to fifth-best on the year so far with a 7.11% cumulative gain.

Food stores worst on year

On the downside, food stores, one of the week’s worst-finishers, as noted, were at the bottom of the year-to-date rankings for a third straight week, posting a 1.86% cumulative loss.

All of the other sectors also recently among the year-to-date underperformers stayed in the exact same positions relative to one another last week that they had held during the Aug. 4 week.

Oil and natural gas extraction (down 0.35%) was the second-worst key sector year to date for a third consecutive week.

Energy exploration and production (down 0.23%) was third-worst last week for a second week in a row.

Miscellaneous retailing (up 1.54%) was fourth-worst for a second straight week and in three weeks out of the last four.

And automotive services, despite their relatively benign weekly performance, as noted, repeated as fifth-worst on the year last week, its third straight week in that position, with a 2.98% year-to-date return.

© 2015 Prospect News.
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