Advantage Data: Metals mining, financial firms lead as major junk sectors stay barely positive

By Paul Deckelman

New York, Sept. 9 - The high-yield market stayed in positive territory - though not by much - during the week ended Friday, posting its second consecutive gain after two consecutive losses, 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 gains, going back to the week ended Aug. 30, have offset losses seen in the weeks ended Aug. 16 and Aug. 23. Those downturns, meanwhile, reversed an advance seen the week before that, ended Aug. 9, which had snapped a two-week losing streak in the weeks ended July 26 and Aug. 2.

Going back a little further, those setbacks, in turn, had halted an earlier market rebound, when junk posted gains over the previous three weeks, dating back to the holiday-shortened week ended July 5. And those July advances had ended a seven-week nosedive dating back to the week ended May 17 and running all the way up through the week ended June 28.

The gain in the latest week marked the 23rd weekly improvement that the junk market has seen so far this year, against 13 weekly setbacks. Aside from the recent clusters of consecutive weekly losses, the only other two downturns recorded this year had occurred back-to-back in the weeks ended Feb. 1 and Feb. 8.

On the upside, besides the gains posted lately, the market had seen a surge of 13 consecutive weeks between mid-February and mid-May, and earlier had opened 2013 with four straight 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 black, while 28 ended in the red. While the overall breakdown was still positive, it represented a clear deterioration from the strength seen in the previous week, when 48 sectors showed gains and eleven showed losses.

The notable retreat from the previous week's solidly positive position 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 - which, unusually, diverged from the overall mildly positive sector breakdown and actually finished in slightly negative territory.

In the week ended Friday, 16 of those larger sectors showed losses, against 14 having posted gains - a clear comedown from the week before, when 29 of the 30 sectors ended in the black, with only one sector finishing in the red.

Among specific major sectors in the latest week, bonds of metals mining companies and financial brokers, dealers and exchanges turned in the best showings, while electric and gas utilities and precision instrument manufacturers had the biggest losses on the week.

Statistical indicators of general market performance were mixed for a third consecutive week, after previously breaking a skid of four straight weeks in which they had been negative across the board. However, the total year-to-date return as measured by the widely followed Merrill Lynch High Yield Master II index was once again ending the week lower, after having broken out of a five-week slump the week before.

Index resumes slide

The Merrill Lynch index showed junk bonds having lost 0.019% for the week as of the close Friday, in contrast to the previous week's 0.282% gain, which had snapped a five-week losing streak that had dated back to the week ended July 26. Those losses had followed advances in the two weeks before that, ended July 12 and July 19, and those improvements, in turn, had broken a skid of eight straight weekly losses before that dating back to the week ended May 17.

The index has now seen 19 gains so far in 2013 against 17 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 2.748%, down from 2.768% 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 still up 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 101.323 on Friday, down from 101.566 a week earlier.

The index's yield to worst stood at 6.366%, up from 6.322% 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.

However, the index's spread to worst over comparable Treasury issues tightened to 474 basis points from 486 bps the week before. That anomaly reflected the continued downturn in Treasuries seen over most of last week, driven by investors' interest-rate fears, although the government bonds did recover a little on Friday after lackluster August job-creation numbers and employment data were released.

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.

Metals mining moves up

Back on a sector basis, Advantage Data meanwhile showed the bonds of metals mining concerns (up 0.57%) having done the best among the significantly sized junk market groupings. It was the fifth consecutive week that the metals miners had been among the Top Five best-performing sectors, having also been in that elite group the previous week with a 0.33% advance.

Also showing strength in the latest week, relatively speaking, were financial brokers, dealers and exchanges (up 0.24%), the amusement and recreation services and coal mining sectors (each up 0.17%) and the automotive services and publishing and printing sectors (both up 0.15%).

On the downside, the electric and gas utilities sector lost 0.20%, the worst showing among the significantly sized sectors.

Filling out the latest week's Bottom Five list of underachievers were precision instrument manufacturers (down 0.17%), depository financial institutions (down 0.13%), building construction (down 0.12%), and the food stores and paper manufacturing sectors, which each lost 0.11% on the week.

This past week was building constructions' second consecutive week among the worst finishers; it had been there the week before with a 0.06% loss, the sole significantly sized sector suffering a loss that week.

Food stores ahead for year

Thirty-six weeks into 2013, the food stores sector - despite its anemic showing on the week - remained the clear leader among the key sectors on a year-to-date basis for a 34th straight week, posting a cumulative return of 12.29%. 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, publishing and printing - which was not among the year-to-date leaders the previous week - jumped into the Number-Two spot with a year-to-date return of 8.06%.

Amusement and recreation, which had been the runner-up the previous week, fell one position to just third-best with a 6.66% return. Insurance carriers (up 6.30%) were fourth-best for a second straight week, followed by the financial brokers, dealers and exchanges (up 5.72%), which had not been among the leaders the week before but which was aided by its robust performance in the latest week.

On the downside, coal mining (down 5.07%) remained the worst among the significantly sized sectors for a 13th straight week and also stayed in the red zone on the year for a fifth consecutive time. Coal was again the only sector in the red for the year this week.

Electric and gas utilities, with the worst showing on the week and a feeble 1.77% cumulative return, were second-worst on the year for a sixth consecutive week.

Also among the underachievers for the year were building construction (up just 2.08%), which was third-worst for a second straight week. Telecommunications (up 2.78%) slipped one position to fourth-worst, while primary metals processing (up 2.82%) fell to fifth-worst, after having not been among the year's weakest performers the week before.

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