Advantage Data: Automotive services, oil and gas tops as junk major-sector rally continues

By Paul Deckelman

New York, Oct. 15 - The high-yield market continued its recent rallying trend in the week ended Friday as it posted its second consecutive weekly gain and its sixth such advance in the last seven weeks, according to sector-tabulated bond-performance statistics supplied to Prospect News on Tuesday by Advantage Data Inc.

That stretch was marred only by a loss in the week ended on Friday, Sept. 27, which snapped a string of four consecutive weeks of improvement before that.

The gain in the latest week was the 27th weekly advance that the junk market has seen so far this year, versus 14 losses.

Up through the middle of May, gains had been seen virtually every week, with just two back-to-back losses in early February marring that strong run. But then came a seven-week nosedive running from the week ended May 17 through the week ended June 28. After that, a choppy pattern was in effect - three straight weeks of gains starting in early July, followed by a week or two of alternating losses and gains here and there for a few weeks. But starting in the week ended Aug. 30, things have been on the upside since then, except for the one recent weekly loss.

In the latest week, 57 of the 60 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black, while only three ended in the red.

That represented a strengthening from the week before, ended Friday, Oct. 4, when 45 sectors showed gains, 13 had posted losses and one was unchanged on the week, showing neither a gain nor a loss. In the interim, Advantage Data recalculated and slightly expanded its roster of sectors.

That strengthening trend was also seen in the behavior 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 outstanding. In the week ended Friday, 29 of those sectors were finishing in positive territory, with just one showing negative results. The week before had seen 26 of those larger sectors ending in the black, with four finishing in the red.

Among specific major sectors in the latest week, bonds of automotive services providers such as vehicle rental businesses and oil and natural gas exploration and production companies turned in the best showings, while the insurance carriers sector was the only one actually posting a loss, although a few others also had relatively anemic returns.

Index extends gains

Statistical indicators of general market performance, including the total year to-date return as measured by the widely followed Merrill Lynch High Yield Master II index, were meanwhile higher across the board on the week after having been mixed the previous week.

At the close on Friday, the Merrill Lynch index showed junk bonds having gained 0.294% for the week, on top of the previous week's 0.289% advance.

The index has now seen 23 gains so far in 2013 against 18 losses. It had finished 2012 with 40 weekly gains versus 12 weekly losses.

As of Friday, the index's year-to-date return had moved up to 4.623% from 4.237% the previous week.

The cumulative return remained down from its peak level for the year so far of 5.835%, recorded on May 9, though still well up from its 2013 low point of 0.384%, set on June 25. However, those levels of performance remain well below those of 2012, when the index had finished the year with a cumulative return of 15.583%, just a little below its peak for the year of 15.589%.

Among its other components, the index showed an average price of 102.331 on Friday, up from 102.1515 a week earlier.

Its yield to worst stood at 6.035%, down from 6.106% a week earlier. While having come in markedly from its high point for the year of 6.853%, set on June 25, it still remained well above its low yield for the year of 4.986% on May 9 - which was also the lowest all-time yield as well.

The index's spread to worst over comparable Treasury issues tightened to 469 basis points from 477 bps the week before. The spread continued to steer a course in between its 2013 wide point of the year of 536 bps, set June 25 and its tightest level for the year so far of 427 bps over Treasuries, set on May 9.

Auto services drive higher

Back on a sector-by-sector basis, Advantage Data meanwhile showed the bonds of automotive services providers as the best-performers among the significantly sized groupings, as they rose by 0.62%.

Oil and gas extraction (up 0.47%) was the next-best, followed by precision instrument manufacturers (up 0.41%), primary metals processing companies (up 0.40%) and petroleum refiners (up 0.39%).

The precision instrument makers and the petroleum refiners had actually been among the Bottom Five worst-performing large sectors the week before, when they had posted losses of 0.05% and 0.23%, respectively.

On the downside, only the insurers, as mentioned, actually finished in the red this past week, easing by 0.02%.

Other sectors showing only relatively meager returns for the week included non-depository credit institutions (up 0.01%), publishing and printing (up 0.09%), paper manufacturing (up 0.17%) and the telecommunications and depository financial institutions sectors, which were both up 0.18% on the week.

The latter two sectors had been among the Top Five best performers the previous week, with gains of 0.26% and 0.25%, respectively.

Food stores ahead for year

Forty-one weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 39th straight week, posting a cumulative return of 19.53%. It remained the first, and so far the only, major sector to hit double digits on a percentage basis this year.

Among the other year-to-date leaders, non-computer electronic manufacturing (up 8.42%) moved into second place, after having not been among the leading year-to-date sectors the previous week.

Amusement and recreation services (up 7.76%), which had risen by one position the previous week to second-best from third place, where it had been for four straight weeks before that, returned to its old familiar niche.

Lodging (up 7.47%) fell by one notch to just fourth-best from third the previous week, while wholesale durable goods distributors (up 7.39%) likewise retreated by one position, to fifth-best from fourth place the week before.

On the downside, coal mining (up 1.86%) remained the worst year-to-date performer among the significantly sized sectors for an 18th straight week. However, it did manage to stay out of negative territory for a fourth consecutive week, after having wallowed in red ink for six weeks before that.

Electric and gas utilities (up 3.08%) was second-worst on the year for an 11th consecutive week, while building construction (up 3.44%) was third-worst for a seventh straight week.

Telecommunications (up 4.19%) fell to fourth-worst on the year from fifth-worst the week before.

Food manufacturing (up 4.30%) tumbled to a fifth-worst cumulative return for the year, despite having not been among the year's worst-performing sectors in the previous week.

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