Advantage Data: Health care, construction sectors biggest losers; junk major-sector rally halted

By Paul Deckelman

New York, Nov. 12 - The high-yield market's recent rallying trend came to an abrupt end in the week ended Friday as junk tumbled after five consecutive weeks on the upside and nine weeks there out of the previous 10, according to sector-tabulated bond-performance statistics supplied to Prospect News on Tuesday by Advantage Data Inc.

The loss in the latest week was the 15th weekly setback that the junk market has seen so far this year, versus 30 gains.

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 had been pretty much on the upside since then, except for one previous recent loss, in the week ended Sept. 27, which had snapped a string of four consecutive weeks of improvement before that.

In the latest week, 40 out of the 60 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the red, with 20 sectors ending in the black.

That represented a reversal from the very strong position seen the week before, ended Friday, Nov. 1, when 54 of those sectors had recorded gains, with just six losses.

That deterioration 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, 22 out of the 30 were finishing in negative territory, with eight showing positive results, in sharp contrast to the previous week, when 28 of those sectors had ended in the black, with only two finishing in the red.

Among specific major sectors in the latest week, bonds of health care providers and building construction companies turned in the worst showings, while the recently weak coal mining and real estate sectors showed surprising strength and had the best showings.

Index turns south

Statistical indicators of general market performance were meanwhile mixed versus the previous week for a third 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, suffered its first weekly loss after five straight weeks before that of having posted gains.

At the close on Friday, the index showed junk bonds having fallen by 0.315% for the week, versus the previous week's 0.258% advance.

The index has now seen 26 weekly gains so far in 2013 against 19 losses. It had finished 2012 with 40 weekly gains versus 12 losses.

As of Friday, the index's year-to-date return had eased to 6.012% - down from 6.347% the previous week and down as well from its high mark for the year so far of 6.367%, which was recorded on Thursday.

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 103.16227 on Friday, down from 103.637291 a week earlier. However, those levels remain well under the high average price for the year of 107.222488, set on May 9.

The index's yield to worst stood at 5.8%, up from 5.658% 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 widened to 448 basis points from 440 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.

Health care, builders off

Back on a sector-by-sector basis, Advantage Data meanwhile showed the bonds of health care providers as the worst performer among the significantly sized groupings, with a 0.32% loss on the week.

That was only slightly worse than building construction, which was down by 0.30% on the week - a sharp comedown for the sector, which had been among the best performers the week before with a 0.42% gain.

Other major sectors showing pronounced weakness included electric and gas utilities (down 0.28%), telecommunications (down 0.26%) and the oil and gas exploration and production and the miscellaneous retailing sectors, each of which lost 0.18%.

On the upside, coal mining was easily the best performer among the major sectors with a sizzling 1.01% gain. The sector accomplished the unusual feat of going from worst to first, having had the largest loss among those sectors the week before, when it was down by 0.08%, one of only two of those 30 key sectors finishing in the red that week.

Real estate (up 0.17%) also saw a good turnaround; the week before, its anemic 0.04% return had put it among several sectors with only small gains which made up the rest of the Bottom Five worst performers.

This week's Top Five list of the best-performing sectors also included metals mining (up 0.16%), printing and publishing (up 0.10%) and chemical manufacturing (up 0.05%). The metals miners and the printers were each among the better performers for a second straight time, having also been among the elite grouping the week before with gains of 0.41% and 0.39%, respectively.

Food stores ahead for year

Forty-five weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 43rd straight week, posting a cumulative return of 19.55%. 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 9.27%) improved by two notches, to second-best on the year so far from fourth-best the week before.

None of the other year-to-date leaders this past week - No. 3 wholesale durable goods distributors (up 8.33%), No. 4 lodging (up 8.00%) and No. 5 financial brokers, dealers and exchanges (up 7.82% on the year) - had been among the leaders the week before.

On the downside, there was considerable churn among the worst year-to-date performers after a number of weeks of relative stability among those underachievers.

Building construction tumbled into last place among the major sectors with just a 4.36% return for the year so far. The week before, it had only been third-worst for a 10th consecutive week.

Electric and gas utilities (up 4.86%) stayed right down near the bottom as second-worst on the year for a 15th consecutive week.

Non-depository credit institutions (up 5.01%), which had not been among the worst laggards the previous week, fell to third-worst.

But the most seismic shift was the relative improvement shown by coal mining (up 5.05%), which was the best-performing major sector for the week, as noted. Coal's year-to-date performance improved by three slots, to just fourth-worst on the year, after having been at the absolute bottom of the pile for the previous 21 straight weeks, a losing streak that dated all the way back to mid-June and which had included a six-week stretch when alone among the underperforming sectors, it had it had actually shown losses for the year.

Machinery and computer equipment manufacturing (up 5.33%) slipped to fifth-worst on the year; it had not been among the year's worst performers the week before.

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