Advantage Data: Coal mining, metals the worst as major junk sectors' plunge continues

By Paul Deckelman

New York, July 1 - The high-yield market suffered its seventh straight weekly setback in the period ended Friday, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

The current downward skid began during the week ended May 17, which had snapped a winning streak of 13 consecutive weeks before that in which junk had shown gains, dating back to the week ended Feb. 15, when it had broken out of a two-week slump.

The latest results marked the ninth loss that the junk market has seen so far this year, against 17 weekly gains for 2013. Aside from the latest cluster of consecutive weekly losses, the other downturns had occurred back-to-back in the weeks ended Feb. 1 and Feb. 8.

On a longer-term basis, last week marked the 12th loss in the last 36 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 over that longer period.

In the latest week, 52 of the broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the red, while 13 ended in the black. While still decidedly negative, the breakdown represented s mild improvement over the results seen the week before, ended June 21, when 59 of the sectors showed losses and just six posted gains.

The overall market's seventh straight week on the downside 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. Some 25 of those larger sectors ended in the red this past week, against five finishing in the black. As in the case of the overall sector count, that did represent some improvement from the previous week, when all 30 of those key sectors had shown losses and none had posted any gains.

Among specific major sectors in the latest week, bonds of coal-mining concerns and metals mining companies had the worst showings, while those of lodging operators, financial institutions and non-computer electronics manufacturers did the best.

Statistical indicators of general market performance remained mostly lower on the week, including the total year-to-date return as measured by the widely followed Merrill Lynch High Yield Master II index; the latter market measure showed its seventh consecutive weekly loss.

Index retreat continues

The Merrill Lynch index showed junk bonds having fallen by 0.118% for the week as of the close Friday, versus its 1.3% loss the week before, which was the largest weekly slide seen by the index this year and one of its largest downturns ever recorded in a single week. The index has now seen 16 gains so far in 2013 against 10 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 1.46%, down from 1.581% at the end of the previous week, and well down from its peak level for the year so far of 5.835%, recorded on May 9. However, a multi-session rally late in the week still left it more than 100 basis points stronger than its new 2013 low point of 0.384%, which had been set just this past Tuesday, June 25. That nadir had eclipsed the old low of 0.417% set on Jan. 2, when it had posted a gain in the very first trading session of the year after beginning at the theoretical starting point of 0.00%.

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 101.533 on Friday, down from 101.801 a week earlier.

But its yield to worst stood at 6.556%, down from 6.623% a week earlier and down as well from its new high point for the year of 6.853%, also set last Tuesday. It had hit its low yield for the year - the lowest all-time yield as well - of 4.986% on May 9.

Its spread to worst over comparable Treasury issues tightened to 521 bps from 525 bps the week before, and had also narrowed from its new 2013 wide point of the year of 536 bps, also set last Tuesday. Its tightest level for the year so far has been 427 bps, also set on May 9.

Coal cave-in continues

Back on a sector basis, Advantage Data meanwhile showed the bonds of coal-mining companies having suffered the biggest loss of any of the significantly sized sectors, as they slid by 1.30% in the week ended Friday. It was the miners' third consecutive week of having the worst showing of any major sector, following the previous week's plunge of 3.37%, and its 0.94% fall the week before that, ended June 14, and its fourth straight week among the Bottom Five worst performers among those major sectors.

Other key sectors showing sizable losses in the latest week included metals mining (down 0.84%), precision instrument manufacturing (down 0.83%), building construction (down 0.65%) and machinery and computer manufacturing (down 0.61%).

It was metals mining's third straight week among the worst finishers, having also been there the week before with a 1.87% loss and a retreat of 0.63% in the June 14 week. However, the machinery and computer makers had actually been among the best finishers the week before, at least in relative terms; while all significant sectors showed losses that week, as noted, machinery and computers' 0.70% downturn was smaller than those of most of the other sectors.

On the upside, bonds of lodging operators posted a 0.64% gain on the week, the best of any significant sector. For the first time since the recent seven-week slide began during the week ended May 17, all five of the sectors on the Top Five list of the week's best sizable-sector performers actually ended in the black this week, even though the others beside lodging had only modest gains.

These included depository financial institutions (up 0.12%), non-depository credit institutions and non-computer electronics manufacturing (both up 0.12%) and amusement services (up 0.09%). It was the second straight week among the elite group for amusement and electronics and the fourth week in a row there for non-depository credit; all had posted relatively modest losses the week before.

Food stores on top for year

At the half-way point for the year, 26 weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 24th straight week, posting a cumulative return of 14.25%. It remained the first, and so far the only, major sector to hit double digits on a percentage basis this year.

The grocers were followed by non-computer electronics manufacturing (up 5.09% on the year so far), insurance carriers (up 4.70%), publishing and printing (up 4.52%) and lodging (up 3.78%), the latter grouping helped by its strong showing on the week. The insurers moved up to third-best for the year from fifth the week before while publishing dropped to fourth-best from second; the new Number-2, electronics manufacturing, and Number-5, lodging, had not been among the year-to-date leaders the previous week.

Among the year-to-date underachievers, coal mining's cumulative loss deepened to 5.96%, with the sector hurt badly by its recent string of big weekly losses, as noted. It was joined in the red for the first time by the metals miners (down 0.84%).

Staying on the positive side for the year, although not by very much, were electric and gas utilities (up 0.50%), real estate (up 0.78%) and telecommunications (up 0.98%). All of those year-to-date laggards had occupied the same rankings, relative to one another, the week before as well.

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