Advantage Data: Coal miners, insurers strongest among key sectors last week; real estate lags

By Paul Deckelman

New York, July 18 - The high-yield market posted its third gain in as many weeks last week as it continued to bounce back from a recent string of losses, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

However, both the positive/negative sector breakdown and the magnitude of the gains were considerably moderated from the previous week, ended July 8.

Those three weeks of upturn followed three straight weeks before that on the downside and four weeks there out of the last eight, but with the 2011 second half now under way, only six weekly downturns have been recorded year to date, against 22 weeks when high yield has ended on the upside.

The stronger tone seen over the past three weeks represented a sharp break with the previous three weeks, but also marked a definitive return to the pattern of strength that has been seen in the sector breakdowns for most of this year.

After advances were recorded in each of the first nine weeks of 2011 - part of a 14-week winning streak that dated all the way back to last Dec. 3 - that run was snapped by negative results over two weeks in mid-March. The sectors rebounded later that month and went on another nine-week tear. However, things have been choppy since then, with a fall in the May 27 week, a rebound in the week ended June 3 and declines in each of the next three weeks, followed by the latest three-week rally.

Some 44 of the 69 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black in the latest week, with 20 closing in the red and another five sectors showing not enough statistically meaningful activity to produce any kind of results.

That was a continuation - though on a more moderate scale - of the strongly bullish pattern seen the week before, when 62 sectors posted positive returns, just four sectors ended with negative results and five others showed no results (Advantage Data reduced the overall number of sectors into which it divides the bonds it follows by two in the most recent week).

Reflecting that return to the usual pattern following the three-week losing streak, 23 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 black this week, with seven finishing in the red. That extended, though a little more moderately, the trend seen over the previous two weeks, including the July 8 week, when all 30 of those major sectors had showed positive returns, against none with negative numbers.

Among specific major sectors in the latest week, bonds of coal miners, insurance carriers and energy producers showed the strongest gains, while on the downside, real estate operators, publishers and transportation equipment manufacturers had the most sizable losses.

Among statistical indicators, the junk market's total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, fell on a Friday-to-Friday basis versus gains seen in the cumulative return for the two previous weeks - which in turn had followed five consecutive weeks of decline before that.

Coal mining comes through

Among specific significantly sized sectors, coal mining showed the strongest gain, returning 0.50%. It was the third consecutive week the coal miners have been among the best performers, including the previous week, when the group gained 0.98%. It has now been among the best-performing sectors in four weeks out of the last five.

Other significant gainers in the latest week included insurance carriers (up 0.37%), oil and gas exploration and production companies (up 0.26%), food stores (up 0.25%), electric and gas services (up 0.34%) and wholesale durable goods distributors (up 0.20%).

It was the second straight week among the elite finishers for the energy E&P names, while the utilities have now been among the best in six weeks out of the last nine. However, the durable goods distributors were among the worst finishers the prior week and have had that unwanted honor in three weeks out of the last five.

On the downside, bonds of real estate companies did the worst, falling by 0.49%. While real estate had been among the best performers in each of the past two weeks, including the July 8 week, when it was up 0.90%, the volatile sector has also been among the worst finishers in four weeks out of the last six and five weeks out of the last eight.

Others finishing with notable losses included publishing (down 0.19%), transportation equipment manufacturing (down 0.14%), health care (down 0.12%), depository financial institutions (down 0.11%) and petroleum refining (down 0.10%).

It was the second seek in a row among the underachievers for the refiners, which in fact had been the single worst finisher the previous week, with a paltry 0.13% gain in what was a strong week for most other sectors. It was also the second straight week among the laggards for publishing, which has now been among the worst finishers now in three weeks out of the last five.

Food stores first for year

On a year-to-date basis 28 weeks into 2011, bonds of the major-sized sectors have been strong, with 26 out of 30 showing cumulative returns of at least three full percentage points, unchanged from the previous week, including two above 7% year to date and 11 above 6%, nine more above 5% and four others topping 4%.

Bonds of food store operators held their cumulative lead with a year-to-date return of 7.51%, followed by precision instrument manufacturers (up 7.05%), insurance carriers (up 6.92%) and petroleum refiners (up 6.88%).

Bringing up the rear, publishing had a relatively modest 3.04% year-to-date return, followed by real estate (up 3.28%), building construction (up 3.53%) and metals mining (up 3.78%).

Key indicator slides

Looking at the overall domestic high-yield market, junk bonds, as measured by the Merrill Lynch High Yield Master II Index, had a one-week loss as of Friday of 0.055%, versus a 0.668% advance in the week ended July 8, which had been its second straight rise after a five-week losing streak before that. The latest retreat left the index's year-to-date return at 5.726% versus the previous Friday's 5.784% and left it down as well from the 6.071% cumulative gain posted at the end of the week ended May 20, the 2011 peak level so far.

As of Friday, the index showed an average price of 102.603, a yield to worst of 7.15% and a spread to worst of 569 basis points over comparable Treasuries, versus a price of 102.827, a yield of 7.14% and a spread of 558 bps at the end of the previous week.

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