Advantage Data: Lodging, building construction groupings tops as junk major-sector rally rolls on

By Paul Deckelman

New York, Nov. 4 - The high-yield market's recent rallying trend continued in the week ended Friday as junk posted its fifth consecutive weekly gain and its ninth such advance in the last 10 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 30th 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, 54 out of the 60 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black, with six sectors ending in the red.

That represented a minor moderation from the very strong position seen the week before, ended Friday, Oct. 25, when 59 of those sectors showed gains, with only one loss.

That robust 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, 28 out of the 30 were finishing in positive territory, with two showing negative results - although that too was a slight easing from each of the previous two weeks, when all 30 of those sectors had ended in the black, with none finishing in the red.

Among specific major sectors in the latest week, bonds of lodging providers and building construction companies turned in the best showings, while the coal mining and non-depository financial institutions sectors had the worst results.

Index stays on winning streak

Statistical indicators of general market performance were meanwhile mixed versus the previous week for a second straight time, after having been higher across the board for two straight weeks before that.

However, the total year to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, posted its fifth consecutive weekly gain. At the close on Friday, the index showed junk bonds having risen by 0.258% for the week, on top of the previous week's 0.53% advance.

The index has now seen 26 weekly gains so far in 2013 against 18 losses. It had finished 2012 with 40 weekly gains versus 12 losses.

As of Friday, the index's year-to-date return had moved up to 6.347% from 6.073% the previous week. Friday's close set a new high mark for the year so far - its ninth straight session of notching new highs after having shattered the old zenith of 5.835%, which had stood since May 9.

The index had fallen to its 2013 low point of 0.384% on June 25.

Among its other components, the index showed an average price of 103.637291 on Friday, up from 103.5225 a week earlier. However, those levels remain well under the high average price for the year of 107.222488, set on May 9.

Its yield-to-worst stood at 5.658%, down from 5.68% 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 440 basis points from 450 bps the week before. While trending lower, 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.

Lodging, builders do the best

Back on a sector-by-sector basis, Advantage Data meanwhile showed the bonds of lodging providers as the best-performer among the significantly sized groupings, with a 0.46% gain on the week.

Building construction (0.42%) was the runner-up on the week, followed closely by metals mining (up 0.41%), printing and publishing (up 0.39%) and petroleum refining (up 0.37%).

It was the refiners' second straight week among the Top Five best-performing major sectors; they had been there the week before with a 0.74% advance.

On the downside, coal mining (down 0.08%) and non-depository financial institutions (down 0.01%) were the only two significantly sized sectors actually finishing in the red this past week.

The week's Bottom Five list of the worst-performing sectors was rounded out by several groupings showing only anemic positive readings, relative to all of the other sectors. These included real estate (up 0.04%), transportation equipment manufacturing (up 0.05%) and food manufacturing (up 0.06%).

It was the third consecutive week among the laggards for real estate, which in fact had been the single worst major-sector performer the week before, when it turned in a gain of only 0.11%, far less than those of the other key sectors.

Food stores ahead for year

Forty-four weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 42nd straight week, posting a cumulative return of 17.50%. 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, printing and publishing (up 9.37%) and petroleum refining (up 8.38%) jumped into the Number-2 and Number-3 positions, respectively, helped by their relatively strong showings on the week. Neither sector had been among the year-to-date leaders the week before.

Non-computer electronic manufacturing (up 8.15%) fell one notch, to just fourth-best from third last week. It marked the second time in the past three weeks that the sector has been the fourth-strongest.

Insurance carriers (up 8.01%) was fifth-best on the year, although the sector had not been among the yearly leaders the week before.

On the downside, all of the weakest significantly sized sectors on the year so far held the same positions relative to one another that they had held during the week ended Oct. 25 - the second consecutive week of such stability.

Coal mining (up 3.95%) remained the worst year-to-date performer among the major sectors for a 21st straight week. However, it did mark its seventh consecutive week of showing positive returns, after having wallowed in red ink for six weeks before that.

Electric and gas utilities (up 4.56%) was second-worst on the year for a 14th consecutive week, while building construction (up 4.81%) was third-worst for a 10th straight week.

Food manufacturing (up 5.06%) was fourth-worst on the year and telecommunications (up 5.55%) was fifth-worst, both for a third consecutive week.

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