Advantage Data: Coal goes cold, lodging lags as junk major-sector rally stalls

By Paul Deckelman

New York, Sept. 30 - The high-yield market stumbled during the week ended Friday, abruptly ending a four-week rally, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

The loss in the latest week marked the 14th weekly decline that the junk market has seen so far this year, against 25 weekly advances.

Up through the middle of May, gains had been 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 in effect - three straight weeks of gains starting in early July, followed by a week or two of alternating losses and gains here and there, until the now-ended four-week winning streak, which had been the best positive run since mid-May.

In the latest week, 32 of the 59 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the red, while 26 ended in the black and one was unchanged on the week, showing neither a gain nor a loss.

That represented a considerable reversal from the week before, ended Sept. 20, when 58 sectors showed gains and just one had posted a loss.

The deterioration from the previous week's strong tone 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, 17 of those sectors were finishing in negative territory, with 12 showing positive results and one - electric and gas utilities - unchanged at 0.00%. In contrast, the week before had seen all 30 of those larger sectors posting gains, with no downturns.

Among specific major sectors in the latest week, bonds of coal mining and lodging companies turned in the worst showings; the week before, both sectors had been among the market leaders. Precision instrument manufacturers had the best results this past week.

Index surge is halted

Statistical indicators of general market performance were meanwhile lower on the week after two consecutive weeks on the upside, including the total year to-date return as measured by the widely followed Merrill Lynch High Yield Master II index.

At the close on Friday, the Merrill Lynch index showed junk bonds having lost 0.104% for the week, after having risen for two straight weeks before that, including the 1.006% jump seen in the week ended Sept. 20; that most recent gain had been the biggest weekly advance seen since the index zoomed 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 18 losses. It had finished 2012 with 40 weekly gains versus 12 weekly losses.

As of Friday, the index's year-to-date return had slipped back below the psychologically significant 4% marker and stood at 3.937%, versus the previous week's 4.231%, reading - which had been the first time the index had closed out a week above 4% since May 31, when it stood at 4.249%.

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 102.085 on Friday, down from 102.526 a week earlier.

The index's yield to worst stood at 6.113%, up from 5.971% a week earlier, which had been 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 widened to 482 basis points from 461 bps the week before. 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.

Coal, lodging sectors slide

Back on a sector-by-sector basis, Advantage Data meanwhile showed the bonds of coal mining companies having lost 0.97% on the week, the worst among the significantly sized groupings.

That was a stinging reversal from the week before, when coal - making a comeback after having spent many weeks on the downside - had been among the best-performing sectors for a third consecutive week, with a robust 1.14% gain.

Also showing notable weakness were lodging (down 0.43%), petroleum refining (down 0.38%), telecommunications (down 0.27%) and the health care and chemical manufacturing sectors, which each slipped by 0.16% on the week.

Like coal, lodging and telecom had each been among the Top Five best-performing sectors the week before, lodging having checked in that week with a solid 1.04% rise and telecom actually having made it for a second straight week and having been the best of all of the key sectors, with a 1.18% advance.

On the upside, precision instrument manufacturing did the best of any of the larger sectors this past week, with a 0.37% gain.

Other key sectors showing relative strength during a generally softer week included primary metals processing (up 0.25%), paper manufacturing (up 0.23%), non-depository credit institutions (up 0.20%) and machinery and computer manufacturers (up 0.15%).

The non-depository credit and machinery and computer-making sectors had each actually been among the Bottom Five worst key-sector performers the preceding week - the latter sector for a second straight week - with relatively sedate returns during an otherwise strongly positive week of 0.40% and 0.37%, respectively.

Food stores ahead for year

Thirty-nine weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 37th straight week, posting a cumulative return of 16.54%. 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 was in the runner-up spot for a second consecutive week with a 7.79% cumulative return. Amusement and recreation was third-best for a fourth week in a row with a 7.46% return. Financial brokers, dealers and exchanges moved up one position, to fourth-best from fifth the previous week, returning 6.80% on the year. Publishing and printing, which had not been among the year-to-date leaders the previous week, moved into the Number-Five slot with a 6.50% return.

On the downside, coal mining, hurt by its losing performance on the week, remained the worst year-to-date performer among the significantly sized sectors for a 16th straight week (up just 1.37%), although it did manage to stay out of negative territory for a second consecutive week, after having wallowed in red ink for the prior six weeks.

All of the other year-to-date underachievers - posting relatively modest 2013 gains so far - also remained in the same positions they had held the week before.

Electric and gas utilities (up 2.43%) was second-worst on the year for a ninth consecutive week.

Building construction (up 3.30%) was third-worst for a fifth straight week, while telecom (up 3.82%) stayed at fourth-worst for the year for a fourth straight week with a 3.82% return.

Food manufacturing (up 4.13%) was fifth-worst for a second straight week.

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