Advantage Data: Coal mining moves up as high-yield major sectors rebound

By Paul Deckelman

New York, Dec. 5 - The high-yield market broke out of a three-week slump last week, as a majority of industry groupings showed gains, according to weekly sector-tabulated bond-performance statistics supplied to Prospect News by Advantage Data Inc.

Last week was the 31st time this year that a majority of sectors showed gains, against 17 weeks of losses - although most of that lopsided almost 2-to-1 positive breakdown reflects the tremendous strength seen earlier in the year, when there was week after week of improvements.

Showing the streaky and cyclical nature of the junk market over the past several months, the three straight weeks of losses terminated by last week's winning performance stood in stark contrast to four straight weeks of gains before that, which dated back to the week ended Oct. 14. That surge, in turn, had followed five straight weeks on the downside, a losing streak that stretched back to the week ended Sept. 9.

In the latest week, of the 73 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 64 finished in the black, just seven sectors were in the red and two others did not show enough statistically meaningful activity to produce any kind of results.

That represented a nearly complete turnaround from the holiday-shortened week before, ended Nov. 25, when 64 sectors posted negative returns, only six had positive results and one sector was unchanged, showing neither a gain nor a loss. In the interim, Advantage Data, which frequently tweaks its lineup of sectors, added back the two sectors which had shown no results at all, raising the total number tracked to 73 from the prior week's 71.

In the latest week, fully 29 of the 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 black, with just one closing in the red - again, a virtually complete reversal of the prior week's strongly bearish trend, which saw all 30 of those major sectors showing negative results, with none exhibiting a positive finish.

Among specific major sectors in the latest week, bonds of coal mining concerns, financial brokers and exchanges and electronics manufacturers had the biggest gains.

On the downside, such as it was, metals mining was the only major sector showing a loss, while depository and non-depository financial institutions had relatively modest gains.

Looking at statistical indicators of overall market performance, junk's total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, ended the week on Friday higher for the first time after four straight weeks before that on the slide.

Key measure comes back

Junk bonds, as measured by the Merrill Lynch index, had a one-week gain of 1.485%, in contrast to the previous week's 1.275% downturn.

Even with the latest week's advance, the index has still now been down in six 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 only sporadically present for much of the second half. Before the latest gain, there had been downturns over the previous four weeks, dating back to the week ended Nov. 4, following three straight gains in the weeks ended Oct. 14 through Oct. 28. Those strong weeks, in turn, had followed five weeks on the slide dating back to early September.

This past week's turnaround brought the index's year-to-date return back up to 2.617% at Friday's close, versus 1.116% a week earlier. Friday's finish was its highest since the 2.639% recorded on Thursday, Nov. 17, and represented the highest end to a trading week since 3.126% on Nov. 10.

However, those readings still remain considerably below the recent peak level of 4.28%, set on Oct. 28, as well as the 2011 high-water mark of 6.362%, set on July 26. But the levels over the past few weeks have also been well up from the index's low point of the year, the 3.998% cumulative deficit recorded on Oct. 4.

Other components of the Merrill Lynch index also gained on the week. As of Friday, the index showed an average price of 96.323, a yield to worst of 8.727% and a spread to worst of 764 basis points over comparable Treasuries, versus a price of 94.966, a yield of 9.035% and a spread of 798 bps at the end of the previous week.

Coal miners climb

Back on a sector basis, Advantage Data meanwhile showed bonds of coal mining companies having the best showing of any significantly sized sector last week, when they were up by 2.41%. It was a solid improvement for the sector, which had been among the biggest losers over the previous five weeks.

Other elite finishers this past week were financial brokers and exchanges (up 1.68%), electronics manufacturers (up 1.42%), telecommunications operators (up 1.40%) and health care providers (up 1.29%). Like the coal miners, the brokers and exchanges and electronics sectors were each rebounding from being among the worst performers the previous week; in fact, the brokers and exchanges group had been the single worst-performing major sector in the week ended Nov. 25, its second straight week among the underachievers, when it lost 1.68%.

There was little downside as such this past week, with just one major sector finishing in the red - metals mining, which lost 0.38%.

Several other sectors had relatively small gains during such a strongly positive week - non-depository financial institutions (up 0.23%), depository financial institutions (up 0.28%), precision instrument producers (up 0.36%) and machinery and computer manufacturers (up 0.43%). The latter sector and the non-depository financials had both been among the better performers the week before.

Food stores firm year to date

On a year-to-date basis 48 weeks into 2011, bonds of food store operators remained in the lead among the significantly sized sectors in the latest week with a return of 8.42% for the year so far. They were followed by electric and gas services (up 8.12%), and the oil and gas exploration and production companies and food manufacturers (both up 8.01%).

Bringing up the rear, sectors posting relatively small cumulative gains on the year so far were publishing (up 1.19%), building construction (up 1.46%) and real estate (up 2.17%). Insurance carriers were up 2.34%, and depository financials had gained 2.90%.

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