Advantage Data: Junk major-sector rally continues; lodging best; auto services weakest

By Paul Deckelman

New York, Jan. 13 - The high-yield market notched its second consecutive weekly advance so far in 2014 and also posted its ninth straight 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 extend its gains after having come back from the relatively rare loss the market had posted in the week ended Nov. 8, 2013, its last losing week - 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 14 weeks out of the last 15 and 18 weeks out of the last 20, going all the way back to Aug. 30.

While there have been two weekly advances so far this year, there have not been any setbacks, yet. In 2013, the junk market had posted gains in 37 weeks, versus 15 weekly downturns.

The latest week was the first full trading week of 2014, as the previous week, ended Jan. 3, had been shortened by the market close on Jan. 1 for the observance of the New Year's holiday, sandwiched in between light, abbreviated pre- and post-holiday sessions.

In that latest week, 55 out of the 59 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black, with four sectors ending in the red.

That represents a small easing of the strength seen in the previous week, when 59 sectors out of 60 measured posted gains and just one showed a loss. In the interim, Advantage Data recalculated and slightly trimmed its roster of sectors.

But there was no weakening 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. For a second consecutive week, all 30 of those major sectors were finishing in positive territory and none were in negative territory during the week ended Friday.

For a third straight week, the lodging sector was the single best performer among the significantly sized sectors this past week. Automotive services was the worst finisher.

Lodging was also the strongest performer on a year-to-date basis, and the auto services group, mostly comprised of vehicle-rental companies, was the weakest so far on the year.

Index improvement continues

Statistical indicators of general market performance meanwhile turned mixed this past week, after having been higher across the board for two straight weeks before that.

But there was just no stopping the total year to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, which posted its ninth consecutive weekly gain and second weekly improvement in 2014. Those advances had followed a rare 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 0.491% on the week, on top of the previous week's improvement of 0.299%. 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 0.662%, its high point for the new year so far, from 0.054% the week before. 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 103.8086, up from 103.4345 the previous Friday, and up as well from the 2013 year-end level of 103.3161, although that latter figure was well below the highest average price for the year of 107.222488, set on May 9, 2013.

Its yield to worst stood at 5.52%, its low level for the year so far, versus 5.634% the previous Friday and 5.671% at the end of 2013. 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 413 basis points on Friday, in from 416 bps the previous Friday, although it had widened out from 406 bps this past Wednesday, its tight point for the year so far. 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 but still finishing a little above its 2013 tight point of 414 bps on Dec. 30.

Lodging continues to lead

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 1.18% gain on the week. It was the third consecutive week that the lodging sector had led all of the major groupings, having also held the top spot in the week ended Jan. 3, when it rose by 0.65%, as well as in the week ended Dec. 27, when it was up by 0.69%. In that earliest 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 printing and publishing (up 0.80%), health care (up 0.75%), paper manufacturing (up 0.72%) and primary metals processing (up 0.66%).

It was the second straight week that the printing and publishing grouping had been among the Top Five best-performing sectors; it had also been there the week before with a 0.35% gain.

For a second consecutive week, there was no real downside this past week, as all of the significantly sized sectors ended in the black, as noted. However, among these, automotive services (up 0.01%) was the weakest, followed by real estate (up 0.14%), miscellaneous retailing (up 0.23%), transportation equipment manufacturing (up 0.28%) and food stores (up 0.30%).

It was the second straight week that the miscellaneous retailing sector was among the Bottom Five worst finishers; it had also had that unwanted honor the week before with a mediocre 0.21% return.

Lodging tops on the year

With two weeks in the books for 2014 so far, the lodging sector - with the best showing for the week, as noted - remained the strongest year-to-date performer, showing a 2.14% return so far.

It was followed by paper manufacturing (up 1.30%), which rose to second strongest on the year so far, despite having not been among the leaders the week before; petroleum refining (up 1.05%), which fell by one position , to just third-best after having held the runner-up slot the previous week; printing and publishing (up 1.03%) and coal mining (up 0.91%), both of which were also down a notch in fourth- and fifth-place this past week, respectively, after having been the third-and fourth-strongest sectors the previous week.

Petroleum refining and printing and publishing, despite their slightly lower rankings this past week, thus both continued to ride the momentum with which they had finished 2013, when they had been among the strongest-performing sectors on the year. The refiners had closed 2013 up 10.86% on the year, second-strongest, and printing and publishing had ended at 8.94%, fifth-strongest on the year.

Coal mining, on the other hand, continued to show new strength that it had not displayed for most of last year; it 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. That stretch included six straight weeks during which it had actually been showing red ink for the year rather than just relatively small cumulative gains.

On the downside, automotive services - the week's worst major-sector performer, as noted - was also the worst on a year-to-date basis (up just 0.12%).

Other year-to-date underachievers so far included real estate (up 0.21%), miscellaneous retailing (up 0.31%), transportation equipment manufacturing (up 0.40%) and food stores (up 0.45%).

It was the second straight week that real estate had been the second-weakest sector, while miscellaneous retailing fell by one notch to third-worst from fourth-worst the previous week.

While the previously struggling coal mining sector, as noted, appeared to be displaying newly found strength early in 2014 after having been 2013's worst laggard, the situation was exactly the opposite for the food stores sector, which appeared to be caught in a revolving door so far this year after having been the dominant major-sector performer last year.

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

The sector was the first, and for most of last year had been the only major sector whose return hit double digits on a percentage basis, until several other sectors broke though that barrier in the last few weeks of the year. But the food stores stayed far ahead of those latecomers, closing out the last full week of 2013 with a cumulative return of 22.56%.

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