Advantage Data: Telecom is tops; coal climbs as major junk-sector rally rolls onward

By Paul Deckelman

New York, Sept. 23 - The high-yield market posted its fourth consecutive gain during the week ended Friday, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

It was junk's second consecutive very strong weekly showing, with those back-to-back robust finishes following a just mediocre performance the week before that, ended Sept. 6.

The gain in the latest week marked the 25th weekly improvement that the junk market has seen so far this year, against 13 weekly setbacks.

Up through the middle of May, gains were seen virtually every week, with just two back-to-back losses in early February marring that strong run. But then came a seven-week nosedive running from the week ended May 17 through the week ended June 28. Since then, a choppy pattern has been seen - three straight weeks of gains starting in early July, followed by a week or two of alternating losses and gains. The most recent gains represent the best winning streak since mid-May.

In the latest week, 58 of the 59 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black, while only one ended in the red, extending and even strengthening the already-potent pattern seen in the previous week, when 54 sectors showed gains and just four posted losses. In the interim, Advantage Data recalculated and slightly expanded its overall sector roster.

The strengthening from an already-solid base was also seen 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, all 30 of those larger sectors showed gains, with no downturns, versus the week before, when 28 of the sectors had closed in the black and just two finished in the red.

Among specific major sectors in the latest week, bonds of telecommunications operators and coal mining companies turned in the best showings. While none of the key sectors actually ended in the red this past week, as noted, machinery and computer manufacturers and non-depository credit institutions had the most lackluster results.

Statistical indicators of general market performance were higher across the board for a second consecutive week, after having been mixed over the three previous weeks and down all around for four straight weeks before that. The total year to-date return as measured by the widely followed Merrill Lynch High Yield Master II index was ending the week on the upside for a second straight time following a very strong advance.

Index shifts into high gear

The Merrill Lynch index showed junk bonds having gained 1.006% for the week as of the close Friday, surpassing the previous week's 0.433% advance. It was the biggest weekly gain seen since the index jumped by 1.267% in the week ended July 12, its largest advance of 2013.

The index has now seen 21 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 4.231%, up from 3.193% the previous Friday. Friday's finish marked the first time the index was closing out a week above the psychologically significant 4% mark since May 31, when it stood at 4.249%.

However, the cumulative return remained down from its peak level for the year so far of 5.835%, recorded on May 9, though still well 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 102.526 on Friday, up from 101.627 a week earlier.

The index's yield to worst stood at 5.971%%, down from 6.253% a week earlier. It was the first weekly close below 6% since May 31, when the yield was 5.70%. While having come in markedly from its high point for the year of 6.853%, set on June 25, it still remained 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 tightened to 461 basis points from 469 bps the week before, with that narrowing reflecting the continued downturn in Treasuries driven by investors' interest-rate fears, as well as improvement in the junk market's own levels. 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.

Telecom, coal sectors climb

Back on a sector basis, Advantage Data meanwhile showed the bonds of telecommunications providers (up 1.18%), followed closely by coal mining concerns (up 1.14%) having turned in the best weekly performances.

It was the second straight week that telecom has been among the Top Five best-performing sectors, having also been there the week before with a 0.58% advance.

Coal meantime was among the elite finishers for a third straight time, and in fact had been the best single sector in the Sept. 13 week, when it zoomed by 1.64%.

Also showing strength in the latest week were metals mining (up 1.07%), lodging (up 1.04%) and food manufacturing (up 1.02%). The metals miners were among the elite performers for a seventh consecutive week, having also been there the week before with a 0.75% return.

As noted, there was no downside as such, with all 30 of the significantly sized sectors having ended in the black this past week. However, several sectors lagged behind the strong showings most other sectors turned in.

The most mediocre finish was the machinery and computer manufacturing grouping (up 0.37%). It was the sector's second straight week among the Bottom Five worst-performing sectors, having also been there the week before with a puny 0.01% return.

Other underachievers on the week included non-depository credit institutions (up 0.40%), the automotive services and wholesale durable goods distributors sectors (both up 0.54%) and miscellaneous retailing (up 0.62%). Automotive services had also been among the laggards the previous week, when the sector returned an anemic 0.13%.

Food stores ahead for year

Thirty-eight weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 36th straight week, posting a cumulative return of 16.38%. 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, non-computer electronics manufacturing climbed two notches into the runner-up spot from the prior week's fourth-place finish with a 7.57% cumulative return. Amusement and recreation was third-best for a third week in a row with a 7.35% return. Lodging (up 6.87%) climbed one notch, to fourth-best from fifth the previous week, while financial brokers, dealers and exchanges took over the now-vacant fifth spot with a 6.60% return, after having not been among the year-to-date leaders the previous week.

On the downside, coal mining (up 2.43%), despite its continued strong showing on a weekly basis, remained the worst year-to-date performer among the significantly sized sectors for a 15th straight week; however, it broke out of negative territory after having wallowed in red ink for the prior six weeks.

Electric and gas utilities, with a relatively sedate 2.96% cumulative return, were second-worst on the year for an eighth consecutive week.

Also among the underachievers for the year were building construction (up 3.47%), which was third-worst for a fourth straight week, while telecom - despite its having had the best weekly showing of all of the larger sectors - stayed as fourth-worst for the year for a third straight week with a 3.85% return. Food manufacturing - which had not been among the previous week's worst year-to-date underachievers - fell to fifth-worst with a 4.05% return for 2013 so far.

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