Advantage Data: Coal mining buried as high-yield major sectors turn downward

By Paul Deckelman

New York, Nov. 14 - The high-yield market recorded sizable losses in the holiday-shortened week ended Thursday as a majority of industry groupings showed losses, according to weekly sector-tabulated bond-performance statistics supplied to Prospect News by Advantage Data Inc.

It was the first such downturn after four consecutive weeks of gains, dating back to the week ended Oct. 14, when the sectors got back in the black after five straight weeks on the downside before that, a losing streak that dated back to the week ended Sept. 9.

Last week was the 15th time this year that a majority of sectors showed losses, against 30 weeks of gains - although most of that lopsided 2-to-1 positive breakdown reflects the tremendous strength seen early in the year, when there was week-after-week of improvements.

Of the 73 broad industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe - up by one from the previous week - 55 finished in the red in the latest week, 15 sectors were in the black and another three sectors did not show enough statistically meaningful activity to produce any kind of results.

That represented a sharp reversal from the week before, ended Nov. 4, when 41 sectors posted positive returns, 27 had negative results and four other sectors did not show any results. Even wider positive breakdowns had been seen in the three weeks before that, ended Oct. 14 through Oct. 28.

And in another sign of the retreat from the prior week's positive pattern, 25 of the 30 most significantly sized sectors - as measured by the number of bond issuers, the collective number of issues tracked and their total face amount - ended in the red this week, with just five of them finishing in the black - versus the week before, when 19 of the sectors had positive results, against 11 negatives.

Among specific major sectors in the latest week, bonds of coal mining companies, telecommunications providers and insurance carriers had the biggest losses.

On the upside, food store operators, depository financial institutions and amusement providers enjoyed the strongest showings among those major sectors.

Looking at statistical indicators of overall market performance, the junk market's total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, eased for a second consecutive time in the week ended Friday, after three straight weeks before that on the rise.

Key measure continues lower

Junk bonds, as measured by the Merrill Lynch index, had a one-week loss of 0.739%, on top of the previous week's 0.348% downturn, in contrast to the three weeks of gains previously.

Those three weekly gains, in the weeks ended Oct. 14 through Oct. 28, had followed five weeks on the slide dating back to early September. The index has now been down in seven weeks out of the last 10, as the junk market struggles to try and rebuild the strong momentum which the market had generated during the first half of the year but which has been absent for much of the second half.

The latest loss brought the index's year-to-date return down to 3.149% on Friday - albeit on extremely light volume that day, with most participants absent due to the Veterans Day holiday - from 3.917% at the end of the previous week. Those readings remain considerably below the 2011 peak level of 6.362%, set on July 26, although recent levels have been well up from the index's low point of the year, the 3.998% deficit recorded on Oct. 4.

Other components of the Merrill Lynch index also retreated on the week but still continued to show a healthy rebound from their more beleaguered early October levels.

As of Friday, the index showed an average price of 97.240, a yield to worst of 8.519% and a spread to worst of 747 basis points over comparable Treasuries, versus a price of 98.130, a yield of 8.305% and a spread of 728 bps at the end of the previous week.

Coal miners get crunched

Back on a sector basis, Advantage Data meanwhile showed bonds of coal mining companies having the worst showing of any significantly sized sector. They were down 0.90%, the group's third straight week among the weakest finishers.

Other underachievers this past week included telecommunications (down 0.87%), insurance carriers (down 0.82%), petroleum refining (down 0.81%) and electronics manufacturing (down 0.80%). The refiners have been among the bottom sectors for four straight weeks now.

On the upside, food stores had the best finish of any major sector, ringing up a 0.54% gain on the week. It was the grocers' second straight week among the best sectors.

Other sectors among the elite performers this past week included depository financial institutions (up 0.27%), amusement providers (up 0.17%), machinery & computer manufacturing (up 0.15%) and paper manufacturers (up 0.11%). It was the second straight week among the big winners for the machinery and computer makers.

Food stores firm year to date

On a year-to-date basis 45 weeks into 2011, bonds of food store operators remained in the lead in the latest week with a return of 10.03% for the year so far. They were followed by electric and gas services (up 8.91%), oil and gas exploration and production companies (up 7.58%), food manufacturers (up 7.38%) and miscellaneous retailers (up 7.20%).

Bringing up the rear, publishing edged into the red for the year with a 0.06% cumulative loss. That was followed by real estate (up 0.33%) and building construction (up 0.92%).

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