Advantage Data: Coal, lodging, metals lead key junk sectors in new year, extending market rally

By Paul Deckelman

New York, Jan. 7 - The high-yield market opened 2013 with a seventh straight week on the upside in the period ending Friday, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc. Last week - the first calendar week of the year - was also the eighth week of gains in the last 11, and as has recently been the case, an overwhelming majority of the sectors posted advances.

Out of the 68 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 67 finished in the black last week and only one sector finished in the red.

That extended and built upon the pattern of strength seen the previous week, ended Dec. 28, when 58 sectors showed gains. Meanwhile, 11 sectors finished in the red that week and three other sectors did not have enough activity to produce a meaningful return one way or another. (In the interim, Advantage Data recalculated and contracted its roster of sectors, bringing the total number of sectors that it follows down to 68 this past week from 72 previously.)

That continuing advance seen in the overall market was also reflected in 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 outstanding; all 30 of those bigger sectors ended in the black last week, with none in the red.

The week before, 28 of those sectors had shown positive results, with just two showing any negative results.

Among specific major sectors in the latest week, bonds of coal mining companies had the best gain, followed by lodging and metals mining concerns. No significantly sized sectors finished in the red, though insurance carriers and non-depository credit institutions led the list of sectors showing only relatively small gains.

Statistical indicators of general market performance showed gains for a seventh straight week, including the total year-to-date return as measured by the widely followed Merrill Lynch High Yield Master II index.

Index starts strongly

The Merrill index showed junk bonds with a one-week gain of 0.718% as of the close Friday, following the previous week's 0.089% rise.

It was the seventh consecutive weekly gain, and the first of 2013. The index finished 2012 with 40 weekly gains versus 12 weekly losses.

The index's year-to-date return - which did not include a small gain recorded on the final day of 2013, last Monday, Dec. 31 - stood at 0.704% on Friday. It had finished 2012 with a cumulative return of 15.583%, just a little below the peak for the year of 15.589%, which had been set on Dec. 20.

Among its other components, the index showed an average price of 105.041 on Friday, up from 104.339 the previous Friday and up as well from 104.352 on the final day of 2012. Its yield to worst stood at 5.891%, versus the week-earlier yield of 6.056% and its year-end yield of 6.083%. Its spread to worst over comparable Treasury issues tightened to 497 basis points from 524 bps the week before and 523 bps at year-end.

Coal climb continues

Back on a sector basis, Advantage Data meanwhile showed the bonds of coal mining companies having posted a 0.94% return last week, the biggest of any of the significantly sized sectors. It was the second straight week in the top spot for coal, which had also been there the week before with a 0.31% gain.

It was also the fourth consecutive week in the Top Five best finishers for coal - just one more week in a more than seven-month stretch, dating back to the week ended May 18, during which coal had either been among the week's standout performers - or among its worst laggards - every single week, with the lone exception of the week ended Dec. 7.

In a number of those weeks, coal was the absolutely best-performing significantly sized sector, or, alternatively, the single worst performer. Showing its truly volatile nature, coal sometimes alternated on a week-by-week basis between being among the best or among the worst, and on more than one occasion, the sector went from first to worst the following week, or vice versa.

Other notable gainers on the week included lodging (up 0.91%), metals mining (up 0.90%), depository financial institutions (up 0.72%) and three sectors returning 0.70% on the week - automotive services, financial brokers and exchanges and metals processing.

It was the fourth straight week among the elite performers for the metals miners, who had been there the week before with a 0.24% return. On the other hand, both the lodging and the automotive services groupings had been among the weakest performers the previous week, lodging showing a 0.03% loss that week and auto services just a meager 0.04% gain.

With all of the significantly sized sectors showing gains in the latest week, there was no downside as such. However, insurance carriers (up 0.03%), non-depository credit institutions (up 0.09%), electric and gas utilities (up 0.28%), wholesale durable goods distributors (up 0.31%) and food stores (up 0.32%) posting smaller gains than the other key sectors.

Coal leads for the year

With just one week gone in 2013, most of the same sectors which led or lagged on the week - though not necessarily all of them - were in a similar position on a year-to-date basis in pretty much the same order, although the numbers were different as year-to-date tabulations would not include the gains or losses that were seen in very thin pre-holiday dealings last Monday, the final session of 2012.

On the upside, coal mining led the way with a year-to-date return so far of 1.10%, going from worst to first - it had been the weakest finisher last year among the significantly sized sectors, not even breaking a 5% return. It was flowed in the new year's total return sweepstakes by lodging (up 0.84%), metals mining (up 0.76%), depository financials (up 0.71%) and brokers and exchanges (up 0.69%).

Among the sectors which had the strongest cumulative returns in 2012, only the depository financials were among leaders so far in 2013; real estate - the strongest 2012 performer among the major sectors, returning more than 30% - and insurance carriers, building construction and investment offices and holding companies, which had all returned 20% or better in 2012, were far back among the pack after the first week of 2013.

Among the underachievers, insurance carriers - as noted, one of last year's big gainers - had the smallest year-to-date return among the key sectors after one week, at 0.07%, followed by non-depository credit institutions (up 0.09%), electric and gas utilities (up 0.26%), wholesale durable goods distributors (up 0.29%) and chemical manufacturers (up 0.34%).

The underachievers were doing worse on the new year than the sectors which, along with coal, had been other major laggards of 2012 - the machinery and computer manufacturers, food stores, oil and natural gas exploration and production and electronics manufacturing.

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