Advantage Data: Coal climb continues as high-yield major sector rebound rolls on

By Paul Deckelman

New York, Dec. 12 - The high-yield market moved up for a second consecutive week after breaking out of a three-week slump, as a majority of industry groupings showed gains last week, according to sector-tabulated bond-performance statistics supplied to Prospect News by Advantage Data Inc.

Of the 73 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 60 finished in the black last week, just nine sectors were in the red and four others did not show enough statistically meaningful activity to produce any kind of results.

That continued the bullish trend seen the week before, ended Dec. 2, when 64 sectors posted positive returns, only seven had negative results and two others produced no results.

Last week was the 32nd 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 unbroken week of improvements.

Showing the streaky and cyclical nature of the junk market over the past several months, the three straight weeks of losses through the week ended Nov. 25 that preceded the past two weeks' winning performances 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, fully 28 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 two closing in the red - again, a continuation of the trend from the prior week, when 29 of those sectors had shown positive results, against only one negative.

Among specific major sectors in the latest week, bonds of coal mining concerns topped the list for a second straight time, while real estate and building construction were also among the biggest gainers.

On the downside, such as it was, non-depository financial institutions and food stores were the only major sectors showing losses, while electric and gas services providers 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 a second consecutive time, after four straight weeks before that on the slide.

Key measure keeps gaining

Junk bonds, as measured by the Merrill Lynch index, had a one-week gain of 0.664%, on top of the previous week's 1.485% advance.

With the latest week's advance, the index has now been split evenly at five weeks out of the last 10 up and five weeks down, as the junk market attempts to rebuild the strong momentum which high yield 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 gains, 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 rise brought the index's year-to-date return back up to 3.298% at Friday's close versus 2.617% a week earlier - well up from the paltry 1.116% the week before that. Friday's finish represented the highest end to a trading week since Nov. 4, when the cumulative return stood at 3.917%.

However, those readings still remain below the recent peak level of 4.28%, set on Oct. 28, as well as the overall 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 96.816, a yield to worst of 8.595% and a spread to worst of 756 basis points over comparable Treasuries, versus a price of 96.323, a yield of 8.727% and a spread of 764 bps at the end of the previous week.

Coal keeps climbing

Back on a sector basis, Advantage Data meanwhile showed bonds of coal mining companies having the best showing of any significantly sized sector for a second straight time last week, when they were up by 1.29%, on top of the previous week's triumphant 2.41% return - which had snapped a five-week skid before that during which coal had been among the biggest major-sector losers.

Other elite finishers this past week were real estate (up 1.18%), building construction (up 1.06%), chemical manufacturing (up 0.90%) and metals mining (up 0.83%). The latter sector had in fact been the single worst performer among the significantly sized sectors the week before - and the only one to actually post a loss that week, when it was down 0.38%.

For a second straight time, there was little downside as such this past week, with just two major sectors finishing in the red - non-depository financial institutions, which plunged by 1.08%, and food stores, down 0.08%. It was the second straight week among the weaker finishers for the non-depository financials.

Several other sectors had just relatively small gains during the otherwise strongly positive week - electric and gas services (up 0.25%) and the depository financial institutions and investment and holding offices sectors, which were both up by a relatively sedate 0.34%. It was the second straight week among the underachievers for the depository financials.

Food stores firm year to date

On a year-to-date basis 49 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 10.80% for the year so far. They were followed by electric and gas services (up 8.25%), the oil and gas exploration and production companies (up 8.22%), miscellaneous retailers (up 8.21%) and food manufacturers (up 7.91%).

Bringing up the rear, sectors posting relatively small cumulative gains on the year so far were building construction (up 1.41%), insurance carriers (up 1.73%) and depository financials (up 2.80%). Publishing was up 3.09% and real estate had gained 3.69%.

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