Advantage Data: Coal, construction sectors perform worst as major junk sectors' slide continues

By Paul Deckelman

New York, Aug. 5 - The high-yield market saw its second consecutive downturn during the week ended Friday, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Those back-to-back declines have brought to at least a temporary halt a recent market rebound, which had seen junk post gains over the previous three weeks, dating back to the holiday-shortened week ended July 5. Those gains, in turn, had ended a seven-week nosedive from the week ended May 17 through the week ended June 28.

The loss in the latest week marked the 11th weekly setback that the junk market has seen so far this year, against 20 gains.

Aside from the recent clusters of consecutive weekly losses, the other downturns had occurred back to back in the weeks ended Feb. 1 and Feb. 8. On the upside, besides the recent gains, the market had seen a surge of 13 consecutive weeks between mid-February and mid-May, and earlier had opened 2013 with four consecutive advances, part of a 10-week surge that had started in late November of last year.

In the latest week, 31 of the 59 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the red, while 27 ended in the black and one sector was unchanged on the week. That represented a moderation of the negative pattern seen in the previous week, ended July 26, when 43 sectors showed losses and 16 had posted gains.

The mitigation in the previous week's losing breakdown 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. In the week ended Friday, 15 of the 30 sectors showed losses, against 14 gains and the one unchanged sector - insurance carriers. The week before, 24of those larger sectors had ended in the red, with just six finishing in the black.

Among specific major sectors in the latest week, bonds of coal mining companies and building construction concerns suffered the worst losses, while paper from the machinery and computer manufacturing sector and amusement and recreation companies had the best showings.

Statistical indicators of general market performance were negative across the board for a second consecutive week, including the total year-to-date return as measured by the widely followed Merrill Lynch High Yield Master II index.

Index remains lower

The Merrill Lynch index showed junk bonds having lost 0.193% for the week as of the close Friday, following the previous week's 0.068% retreat. The market measure's second straight weekly loss had followed two previous consecutive gains, which in turn had broken a skid of eight straight weekly losses before that dating back to May 17.

The index has now seen 18 gains so far in 2013 against 13 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 3.266%, down from 3.466% at the end of the previous week.

The cumulative return remained well down from its peak level for the year so far of 5.835%, recorded on May 9 though up solidly from its 2013 low point of 0.384%, set on June 25. 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 102.646 on Friday, down from 102.928 a week earlier.

The index's yield to worst stood at 6.428%, up from 6.061% a week earlier. While having come in from its high point for the year of 6.853%, set on June 25, it remained still 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 widened to 484 basis points from 480 bps the week before, continuing 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.

Coal, construction lower

Back on a sector basis, Advantage Data meanwhile showed the bonds of coal mining companies having done the worst among the significantly sized junk market groupings, slipping by 0.81% on the week. It was the miners' second consecutive week among the Bottom Five poorest-performing major sectors, having also been there during the July 26 week with a 0.46% decline.

Other underachievers included building construction (down 0.58%), metals mining (down 0.36%), electric and gas utilities (down 0.32%) and food manufacturing (down 0.27%).

Along with coal, it was the second straight week among the weakest finishers for the utilities, which had also been there the previous week, when the sector slid by 0.39%. On the other hand, metals mining had actually been the previous week's best finisher among the key sectors with a 0.17% return, its second consecutive week among the Top Five.

On the upside, the new king of the hill for the week was the machinery and computer manufacturing segment, which gained 0.34%.

Other sectors showing relative strength included amusement and recreation services and wholesale durable goods distributors (both up 0.28%), financial brokers, securities dealers and exchanges (up 0.22%) and miscellaneous retailing (up 0.19%).

It was the second consecutive week among the elite performers for the wholesale durable goods sector, which had been there the week before as well with a 0.16% gain. Amusement, however, had been among the worst finishers the previous week, when the grouping fell by 0.53%.

Food stores firmest for year

Thirty-one weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 29th straight week, posting a cumulative return of 13.29%. It remained the first, and so far the only major sector to hit double digits on a percentage basis this year.

The grocers were immediately followed for a second consecutive week by the insurance carriers, with a 6.29% return on the year so far. Non-computer electronic manufacturing held down the third-best slot, and publishing and printing was fourth-strongest, both also for a second consecutive week, with cumulative returns of 5.90% and 5.72%, respectively. Amusement and recreation, which was fifth-best on the year so far with a 5.44% return, had not been among the previous week's year-to-date leaders.

Among the underachievers for 2013 so far, coal mining remained the weakest among the significantly sized sectors for an eighth straight week, although it at least remained in the black for the year (up 0.68%) for a third week in a row, after actually having been in the red for four weeks before that.

Electric and gas utilities fell to second-worst on the year, with a 2.10% return, after having been just third-worst for the two prior weeks. It traded places with metals mining (up 2.23), which improved by one notch to just third-worst after two weeks of having been second-worst. Fourth-worst sector primary metals processing (up 2.56%) and fifth-worst petroleum refining (up 2.70%) had not been among the worst year-to-date performers the previous week.

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