Advantage Data: Junk major-sector rally continues; lodging best; food manufacturing weakest

By Paul Deckelman

New York, Jan. 6 - The high-yield market picked up at the start of this year right where it had left off at the end of last year, posting its eighth consecutive weekly gain during the week ended Friday, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Junk thus continues to come back from the relatively rare loss the market had posted in the week ended Nov. 8, 2013 - which had snapped a winning streak of five consecutive weeks on the upside before that and a streak of nine positive weeks out of the previous 10.

The latest weekly advance now runs that positive trend to 13 weeks out of the last 14 and 17 weeks out of the last 19.

It lets 2014 begin with one week in the win column. In 2013, the junk market had posted gains in 37 weeks, versus 15 weekly setbacks.

In the latest week, shortened by the mid-week market close for the observance of the New Year's holiday, sandwiched in between light, abbreviated pre- and post-holiday sessions, 59 out of the 60 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black, with one ending in the red.

That represented a small improvement over the already-strong showing recorded the previous week, ended Dec. 27; during that week, which had seen the market closed at mid-week for the observance of the Christmas holiday, with light, abbreviated sessions both immediately before and after that, 56 of the 60 sectors had shown gains, with three sectors showing losses and one sector unchanged on the week, showing neither a gains or a loss.

That stronger trend 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 sectors were finishing in positive territory, with none in negative territory.

That was also up from the previous week, when 29 of the 30 sectors had closed in the black, none had ended in the red and one was unchanged.

For a second straight week, the lodging sector was the single best performer among the significantly sized sectors this past week. Food manufacturing was the worst.

Lodging was also the strongest performer on a year-to-date basis, and the food makers were the weakest.

Index improvement continues

Statistical indicators of general market performance were meanwhile higher across the board for a second straight week, after having been mixed for three straight weeks before that.

The total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, posted its eighth consecutive weekly gain. Those advances had followed a loss in the week ended Nov. 8, which, in turn, had come after the index had racked up five straight weeks of gains before that.

At the close on Friday, the index showed junk bonds having risen by 0.299% on the week, on top of the previous week's improvement of 0.122%. In 2013, the index showed 33 weekly gains against 19 losses, versus 2012, when it notched 40 gains and 12 losses.

As of Friday, the index's year-to-date return had firmed to 0.054%, its high point for the new year so far. In 2013, it had ended at 7.419%, its high point for the year - well above the index's 2013 low point of 0.384%, recorded on June 25, but well down from the 15.583% reading at which it had ended 2012.

Among its other components, the index showed an average price of 103.4345, up from 103.3131 the previous Friday, and up as well from the 2013 year-end level of 103.3161, which was well under the highest average price for the year of 107.222488, set on May 9.

Its yield to worst stood at 5.634%, up from 5.607% the previous Friday, though down from 5.671% at the end of 2013 last Tuesday. While that year-end figure had come in markedly from its high point for the year of 6.853%, set on June 25, it still remained above its low yield for the year of 4.986% on May 9 - which was also the lowest all-time yield as well.

Its spread to worst over comparable Treasury issues stood at 416 basis points on Friday, up from 414 bps the previous Friday, its tight point for the year. The spread stood at 418 bps on the last day of 2013, having come in smartly from its 2013 wide point of the year of 536 bps, set on June 25.

Lodging leads the way

Back on a sector-by-sector basis, Advantage Data meanwhile showed the bonds of lodging providers as the best performer among the significantly sized groupings, with a 0.65% gain on the week. It was the second consecutive week that the lodging sector had led all of the major groupings, having also held the top spot in the week ended Dec. 27, when it was up by 0.69%. That week, lodging had accomplished the relatively unusual feat of having gone from worst to first; it had been the absolute worst performer during the preceding week, ended Dec. 20, when it lost 0.65%.

Also showing strength in the latest week were coal mining (up 0.60%), printing and publishing (up 0.35%), telecommunications (up 0.32%) and the non-depository credit institutions and oil and gas exploration and production sectors, both of which were up by 0.30% on the week.

It was the fourth straight week that coal mining has been among the best-performing sectors; it was also there the previous week with a 0.21% gain. The energy E&P sector was meantime among the elite finishers for a second week in a row, having also been there the week before with a 0.18% improvement.

There was no real downside this past week, as all of the significantly sized sectors ended in the black, as noted. However, among these, food manufacturing (up 0.09%) was the weakest, followed by metals mining (up 0.17%), wholesale durable goods distributors (up 0.18%), petroleum refining (up 0.19%) and miscellaneous retailing (up 0.21%).

It was the second straight week that the durable goods distributors were among the Bottom Five worst-performing sectors; they had also made it the week before with a meager 0.08% return.

Lodging tops on the year

Closing out the first week of 2014, the lodging sector - with the best showing for the week, as noted - was also the strongest year-to-date performer, showing a 0.56% return so far (the year-to-date returns differ from the weekly returns, in that they do not include any gains or losses recorded this past Monday or Tuesday, which were the last two sessions of 2013).

Lodging was followed by petroleum refining (up 0.43% on the year so far), printing and publishing (up 0.35%), coal mining (up 0.31%) and primary metals processing (up 0.29%).

Petroleum refining and printing and publishing had each ended 2013 among the strongest-performing sectors on the year, with the refiners closing out 2013 up 10.86% on the year, second-strongest, and printing and publishing having ended at 8.94%, fifth-strongest on the year.

Coal mining, on the other hand, despite its recent improvement, had closed out 2013 with the worst finish of any major sector for the year, up just 4.35%. Coal spent most of last year at the bottom of the pile, or at best not too far above that nadir, at one point earlier in the year languishing for a full 21 straight weeks as the absolute worst-performing significantly sized sector.

And for the first time in a year, the food stores sector was not among the best-performing year-to-date performers, returning 0.27% on the week and just a modest 0.15% since the year's beginning.

In 2013, food stores had been among the strongest cumulative finishers starting the second week of the year and by the third week the sector had grabbed the top spot and never looked back, remaining the strongest major sector over the next 49 straight weeks.

The food stores grouping had closed out the last full week of 2013 with a cumulative return of 22.56%.

On the downside, food manufacturing - the week's worst performer, as noted - was also the worst on a year-to-date basis (down 0.04%). It had also been among the worst finishers last year, closing out the year second-worst with a 4.93% return, better than only coal mining.

Other year-to-date underachievers so far included the health care and real estate sectors (each up 0.07%), miscellaneous retailing (up 0.08%) and chemical manufacturing (up 0.09%).

One sector missing from its usual place on the list of the worst laggards, besides coal, as noted, was electric and gas utilities, which rose by 0.28% on the week and which posted a 0.19% year-to-date return as of Friday. In 2013, the utilities grouping was coal's partner down near the bottom for most of the year, spending 18 straight weeks as second-worst and ending 2013 with a 5.09% return, third-worst on the year.

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