Advantage Data: Auto services, coal mining the worst as major junk sectors plunge

By Paul Deckelman

New York, May 20 - The high-yield market ran into a brick wall in the period ended Friday, snapping a winning streak of 13 consecutive weeks in which it had shown gains, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Those gains had been seen since the week ended Feb. 15, when junk had broken out of a two-week slump.

The latest results marked only the third loss that the junk market has seen so far this year, against 17 weekly gains so far in 2013. The other two losses had occurred back-to-back in the weeks ended Feb. 1 and Feb. 8.

On a longer-term basis, last week marked just the sixth loss in the last 30 weeks, versus 24 gains during that time. Besides the now-ended 13-week winning streak, a 10-week stretch of consecutive weekly gains between last November and the week ended Jan. 25 also helped to account for much of those gains.

In the latest week, 50 of the broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the red, with 15 sectors ending in the black. That represented a massive deterioration from the week before, ended May 10, when 57 of those sectors posted gains and nine suffered losses.

The overall market's sudden reversal after a strong trend since mid-February was also reflected 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.

Twenty-eight of those key sectors ended in the red this past week, with only two finishing in the black - almost the exact mirror opposite of the prior week, when 29 of those bigger sectors showed gains on the week and just one loss.

Among specific major sectors in the latest week, bonds of vehicle rental companies and other automotive services providers had skidded into the worst ditch among the significantly sized sectors, with coal miners also in a deep hole. Non-depository credit institutions and machinery and computer manufacturers were the only key sectors actually finishing in the black this past week.

Statistical indicators of general market performance were mixed on the week, while the total year-to-date return as measured by the widely followed Merrill Lynch High Yield Master II index, showed its first weekly loss after three consecutive weeks of having shown gains. Its last previous loss, in the week ended April 19, had been the index's first loss after nine consecutive weeks of gains before that.

Index in retreat

The Merrill index showed junk bonds with a one-week fall of 0.338% as of the close Friday, in contrast to its rise of 0.258% in the week ended May 10. The index has now seen 16 gains so far in 2013 against four losses. It had finished 2012 with 40 weekly gains versus 12 weekly losses.

As of Friday, the index's year-to-date return stood at 5.34%, down from 5.697% at the end of the previous week, and down as well from its peak level for the year so far of 5.835%, recorded on May 9. The index had finished 2012 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 106.544 on Friday, down from 107.059 a week earlier. Its yield to worst stood at 5.207%, up from 5.04%, and well up from the May 9 low of 4.986, its lowest-ever level on record. Its spread to worst over comparable Treasury issues widened to 441 basis points from 428 bps the week before and from 427 bps, the tightest level so far this year, also set on May 9.

Auto services skid

Back on a sector basis, Advantage Data meanwhile showed the bonds of automotive services companies showing the biggest loss of any of the significantly sized sectors, as they were down 0.87% in the week ended Friday. It was the sector's second consecutive week among Bottom Five worst performers, having also been there the week before with a meager 0.05% gain.

Other major sectors showing sizable losses in the latest week included coal mining (down 0.59%), health care (down 0.55%), chemical manufacturing (down 0.55%) and business services (down 0.38%).

On the upside, non-depository credit institutions had the best performance, with a 0.21% gain. Machinery and computer manufacturers also ended the week on a positive note, gaining 0.05%.

They were the only two significantly sized sectors to avoid a loss on the week.

The Top Five list of the best performers, on a relative basis, was rounded out by several sectors merely posting smaller losses than the others - depository financial institutions (down 0.01%), paper manufacturing (down 0.05%) and the lodging and wholesale durable goods distribution sectors, both of which lost 0.06%. The papermakers had been among the worst-performing sectors the previous week, with a 0/02% loss.

Food stores lead for year

Twenty weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for an 18th straight week, posting a cumulative return of 13.06%. It remained the first, and so far the only major sector to hit double digits on a percentage basis this year.

Lodging, not among the year's leaders the previous week, jumped into second place with a 7.97% return on the year so far, followed by precision instrument manufacturers (up 7.13%), insurance carriers (up 7.02%) and non-computer electronic equipment manufacturers (up 6.67%) - the prior week's second-best cumulative finisher.

Among the year-to-date underachievers, wholesale durable goods distributors, which were not among the year's worst performers the previous week, had the smallest gain, at 3.60%, followed by non-depository credit institutions (up 3.67%) - the absolute worst finisher in the previous two weeks.

Also showing weakness were telecommunications (up 3.79%) - its second straight week as third-worst - followed by transportation equipment manufacturing (up 3.81%) and real estate (up 4.07%).

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