Advantage Data: Coal mining, metals hardest hit as key sector plunge deepened last week

By Paul Deckelman

New York, Aug. 16 - The high-yield bond market's plunge worsened last week, with the vast majority of industry groupings - particularly the most significantly sized - showing sizable losses for a second straight week, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

It was the eighth weekly downturn so far this year, against 24 weeks when high yield has ended on the upside, including five weeks of upturn immediately preceding the nosedive. That burst of strength, in turn, had followed three straight weeks before that on the downside.

Some 65 of the 71 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the red in the latest week, with just two closing in the black and another four sectors showing not enough statistically meaningful activity to produce any kind of results.

That represented a continuation and even an intensification of the bearish pattern set the week before, ended Aug. 5, when 57 sectors posted negative returns, eight ended with positive results and five others showed no results (Advantage Data added two sectors to its roster in the intervening week).

All 30 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 red this week, with none finishing in the black - extending the trend seen the week before, when 28 of the sectors showed negative returns and two of them had positive results.

Among specific major sectors in the latest week, bonds of coal miners, metals producers and miscellaneous retailers were the worst finishers, while even the best performers, on a relative basis, still showed 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 for a third straight time on a Friday-to-Friday basis, and has now been on the downside in four weeks out of the last five.

Coal gets clobbered

Among specific significantly sized sectors, bonds of coal mining companies showed the biggest loss, down 3.62%. It was the third consecutive week the miners have been among the worst finishers, following the sector's losses of 1.80% the previous week and 0.07% the week before that, ended July 29.

Other significant losers in the latest week were metals production (down 3.56%), miscellaneous retailing (down 3.42%), transportation equipment manufacturing (down 3.26%) and the electronics manufacturing and building construction sectors, both down 3.10%. It was the second straight week among the underachievers for the retailers, while the builders have had that unwanted honor in three weeks out of the last four.

There was no real "upside" per se, as all of the significant sectors posted losses on the week of at least one full percentage point or more. However, the grouping with the smallest such loss was electric and gas services (down 1.23%), which has now been among the better-performing sectors, relatively speaking, for five straight weeks, and in 10 weeks out of the last 13.

Other sectors showing relatively smaller losses than the others included food stores (down 1.33%, its second straight week among the better finishers), financial brokers and exchanges (down 1.34%), lodging (down 1.77%), machinery and computer manufacturers (down 1.89%) and automotive services, chiefly vehicle rentals, (down 1.94%).

Food stores still first

On a year-to-date basis 32 weeks into 2011, bonds of the major-sized sectors have been moderately strong, with 21 out of 30 showing cumulative returns of at least three full percentage points, although that represented a deterioration from 29 sectors at 3% or above year to date, posted the week before. None were above 8% in the latest week, down from three the previous week; one was above 7%, versus two the week before; one topped 6%, versus five in the previous week; and one more was above 5% - well down from 10 the week before. And for the first time in many months, two sectors fell into negative territory on a year-to-date basis.

Bonds of food stores continued to hold the top spot with a year-to-date gain of 7.73%, followed by electric and gas services (up 6.48%) and precision instrument manufacturers (up 5.27%).

Bringing up the rear, publishing and building construction tumbled into the red, with losses of 0.45% and 0.26%, respectively. Automotive services showed just a modest 0.94% year-to-date return.

Key indicator slide continues

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 2.833% - the largest downturn of the year so far - versus 1.814% of red ink in the week ended Aug. 5, the previous record-holder.

The big weekly loss left the index's year-to-date return at 1.325% - well down from the previous Friday's 4.279% - and way down from the 2011 peak level of 6.362%, set on July 26. It was the third straight weekly loss and the lowest level at which the index ended a trading week since the 0.872% reading seen on Friday, Jan. 7.

As of this past Friday, the index showed an average price of 97.667, a yield to worst of 8.476% and a spread to worst of 728 basis points over comparable Treasuries, versus a price of 100.738, a yield of 7.687% and a spread of 632 bps at the end of the previous week.

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