Advantage Data: Depository financials, precision device makers tops as junk bond rally continues

By Paul Deckelman

New York, Oct. 21 - The high-yield market continued its recent rallying trend in the week ended Friday as it posted its third consecutive weekly gain and its seventh such advance in the last eight weeks, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

That mostly successful 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 28th 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 all 60 of the broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black, with none ending in the red.

That represented a strengthening from the week before, ended Friday, Oct. 11, when 57 sectors showed gains and three sectors posted losses.

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, all 30 of those sectors were finishing in positive territory, with none showing negative results. The week before had seen 29 of those larger sectors ending in the black, with just one finishing in the red.

Among specific major sectors in the latest week, bonds of depository financial institutions and manufacturers of precision instruments such as medical devices turned in the best showings, while the non-depository credit institutions and lodging sectors had the most subdued results.

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 for a second consecutive week, after having been mixed the week before that.

At the close on Friday, the Merrill Lynch index showed junk bonds having gained 0.911% for the week, on top of the previous week's 0.311% advance.

The index has now seen 24 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 5.514% from 4.5627% the previous week. It was the first time the index had ended a week above the psychologically significant 5% mark since May 24, when it closed out the week with a 5.03% cumulative gain.

The cumulative return still 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, all of 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 103.137871 on Friday, up from 102.331a week earlier.

The index's yield to worst stood at 5.798%, down from 6.063% 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.

Its spread to worst over comparable Treasury issues tightened to 455 basis points from 472 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.

Depositories, instruments, do best

Back on a sector-by-sector basis, Advantage Data meanwhile showed the bonds of depository financial institutions and precision instrument manufacturers as the best-performers among the significantly sized groupings, with both up by 0.88% on the week.

It was the second consecutive week among the Top Five best performing sectors for the precision instrument makers, who were there the week before with a 0.41% gain. However, the depository financials had been among the worst-performing sectors the previous week, notching a relatively feeble 0.18% return.

Other major sectors showing strength on the week were electric and gas utilities and telecommunications (both up 0.85%) and oil and gas exploration and production.

It was the second consecutive week that the oil and gas names finished among the elite performers, having also been there the previous week with a 0.47% return.

However, telecom had actually been among the big losers the previous week with a very sedate return of just 0.18%.

There was no downside as such in the latest week, with all of the broad-market and significantly sized sectors showing gains on the week, as noted.

Non-depository credit institutions and lodging (both up just 0.37%) had the week's worst showing. It was the second consecutive week among the Bottom Five worst performing sectors for the non-depository credit names, which had been there the previous week with a return of just 0.01%.

Other underachievers on the week included food stores (up 0.40%), real estate (up 0.44%) and wholesale durable goods distributors (up 0.45%).

Food stores ahead for year

Forty-two weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 40th straight week, posting a cumulative return of 17.16%. 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, amusement and recreation services (up 8.21%) moved up one position to second-best from third the week before.

Financial brokers, dealers and exchanges (up 8.04%) moved up to third-best, even though the sector had not been among the leaders the previous week.

Non-computer electronic manufacturing (up 8.02%) tumbled two slots, down to just fourth-best on the year from second place the week before, while petroleum refining (up 7.55%), which had not been among the leaders the previous month, improved to fifth-best.

On the downside, coal mining (up 2.44%) remained the worst year-to-date performer among the significantly sized sectors for a 19th straight week. However, it did manage to stay out of negative territory for a fifth consecutive week, after having wallowed in red ink for six weeks before that.

Electric and gas utilities (up 3.40%) was second-worst on the year for a 12th consecutive week, while building construction (up 4.03) was third-worst for an eighth straight week.

Food manufacturing (up 4.50%) fell one notch to fourth-worst on the year from fifth-worst previously, switching places with telecom (up 4.77%), which improved, relatively speaking, to just fifth-worst from fourth-worst the week before.

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