Advantage Data: Utilities, chemical makers perform worst as major junk sectors weaken

By Paul Deckelman

New York, Aug. 19 - The high-yield market returned to its recently losing ways during the week ended Friday, posting its third loss in the last four weeks, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Demonstrating the recent choppy pattern in the junk market, the latest week's retreat reversed an upturn seen the previous week, ended Aug. 9, which had snapped a two-week losing streak in the weeks ended July 26 and Aug. 2.

Those downturns, meanwhile, had brought to a halt an earlier market rebound, which had seen junk post gains over the previous three weeks, dating back to the holiday-shortened week ended July 5. The July advances, in turn, had ended a seven-week nosedive dating back to the week ended May 17 and running all the way through the week ended June 28.

The loss in the latest week marked the 12th weekly setback that the junk market has seen so far this year, against 21 weekly 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, 46 of the 57 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the red, while 11 ended in the black. That represented a clear departure from the positive pattern seen in the previous week, when 42sectors showed gains and 15 had posted losses.

The reversal from the previous week's winning 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, 24 of the 30 sectors showed losses, against just six gains. The week before, 19 of those larger sectors had ended in the black, with 11 finishing in the red.

Among specific major sectors in the latest week, bonds of electric and gas utilities and chemical manufacturers had the worst showings, while paper from coal mining and metals mining concerns did the best.

Statistical indicators of general market performance were negative across the board for a fourth 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 0.328% for the week as of the close Friday, following the previous week's 0.097% retreat. The market measure's fourth straight weekly loss had followed two previous consecutive gains in July, 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 15 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 2.827%, down from 3.165% at the end of the previous week. It was the first time in more than a month, since early July, that the index had ended the week below the psychologically significant 3% mark.

The cumulative return remained well down from its peak level for the year so far of 5.835%, recorded on May 9, though still 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 101.913 on Friday, down from 102.399 a week earlier.

The index's yield to worst stood at 6.25%, up from 6.175% 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.

Despite the index's continuing overall weakness, its spread to worst over comparable Treasury issues actually tightened to 479 basis points from 489 bps the week before, reflecting the even more pronounced weakness seen in Treasury issues on investor worries about higher interest rates.

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.

Utilities, chemicals sink

Back on a sector basis, Advantage Data meanwhile showed the bonds of electric and gas utility operators having done the worst among the significantly sized junk market groupings, losing 0.54% on the week.

The chemical manufacturers finished not much better (down 0.50%), followed by telecommunications providers (down 0.47%), non-computer electronics manufacturers (down 0.44%) and precision instrument producers (down 0.43%).

It was the second consecutive week among the Bottom Five worst performers for chemicals, telecom and electronics manufacturing, which had also been there in the week ended Aug. 9 with losses of 0.16%, 0.19% and 0.20%, respectively.

On the upside, coal mining did the best among the significantly sized sectors with a 0.29% gain. The miners accomplished the notable feat of having gone from worst to first; in each of the two previous weeks, coal had been the worst performer with a loss of 1.48% in the Aug. 9 week and 0.81% the week before that, and the sector had been among the worst losers over three straight weeks.

Metals mining (up 0.25%), publishing and printing (up 0.19%), lodging (up 0.13%) and financial brokers, dealers and exchanges (up 0.03%) filled out the week's Top Five roster of best-performing major sectors.

It was the second straight week among those elite finishers for both the metals mining and the lodging groupings, which had posted gains of 0.22% and 0.52% the previous week, when lodging, in fact, did the best of any of the key sectors.

Food stores firmest for year

Thirty-three weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 31st straight week, posting a cumulative return of an even 11%. 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 by publishing and printing (up 7.71% on the year), holding second place for a second consecutive week, and the insurance carriers (up 6.53%), in third place also for a second straight week.

Non-computer electronics manufacturers (up 5.73%) were fourth-strongest on the year; the sector had not been among the year-to-date leaders the week before. Amusement and recreation services (up 5.59%) fell one position on the week, from fourth- to fifth-best.

Among the underachievers for 2013 so far, coal mining (down 1.31%) remained the most anemic among the significantly sized sectors for a 10th straight week and also stayed in the red zone on the year for a second straight week. despite its relatively strong showing on the week.

Coal was the only sector in the red for the year this week. Electric and gas utilities - hurt by their week's-worst finish - were second-worst for a third consecutive week, with a 1.71% return, while petroleum refining (up 2.82%) fell to third-worst on the year; it had not been among the year-to-date worst performers the week before.

Building construction (up 2.85%) was fourth-worst for a second straight week, and telecom (up 2.86%) was the fifth-worst for the year so far, also for a second week in a row.

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