Advantage Data: Junk market, major sectors head south; coal mining worst; real estate best

By Paul Deckelman

New York, March17 - The high-yield market fell last week - its first setback after spending the previous five consecutive weeks on the upside, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

The loss during the week ended Friday was the first seen since the week ended Jan. 31, which had been the first weekly downturn for 2014 and had snapped a winning streak before that of four consecutive weeks since the beginning of the year and 11 straight weeks of gains dating back to early November of 2013. Since the beginning of this year, broad-market gains have now been seen in nine weeks, versus the two downturns.

In the latest week, 32 out of the 57 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the red, with 25 ending in the black. That was the exact mirror opposite of the sectors' showing during the previous week, ended March 7, when 32 of the sectors being tracked posted gains and 25 had losses.

A separate, more focused selection of just 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, was also in negative territory this past week, with 21 of the 30 closing in the red, while nine finished in the black.

That more select grouping of the larger sectors generally moves up or down in tandem with the overall market, although during the March 7 week, there was a rare divergence - the first recorded since the week ended Sept. 9, 2013 - as 16 of those sectors had posted losses and 14 had shown gains, even as the overall sector count had been in positive territory. It had been the first downturn for the key sectors after four straight weeks of improvement before that. Those significantly sized sectors have now mostly shown gains in eight weeks since the start of the year, versus three downturns.

In the latest week, coal mining was the worst performer among the significantly sized sectors, its second consecutive week right at the bottom, while the real estate grouping was the best.

Coal - hurt by its poor weekly showing - was also the worst year-to-date performer among those major sectors for a second consecutive week, while printing and publishing remained the best performer among those sectors for a seventh straight week.

Index retreats again

In line with the softer market performance shown by the behavior of the industry sectors, statistical indicators of general market performance meanwhile were lower across the board last week versus the previous Friday for a second straight week.

Among those indicators was the widely followed Merrill Lynch High Yield Master II index, which posted its second straight weekly loss after four consecutive weekly gains. It fell by 0.159%, on top of the previous week's 0.184% downturn.

The index has now seen seven weekly gains in 2014, against four losses. In 2013, the index showed 33 weekly gains against 19 losses, while in 2012, it had notched 40 gains and 12 losses.

As of Friday, the index's year-to-date return had slipped to 2.407%, down from 2.57% the previous Friday, and down as well from its high point of the year, the reading of 2.812% recorded on March 5. In 2013, the index had ended at 7.419%, its high point for the year, although that was well down from the 15.583% reading at which it had ended 2012.

Among its other components, the index showed an average price of 104.2669 on Friday, down from 104.577957 the previous Friday and down even more from the 104.915754 seen on Feb. 28, its high point for the year. However, it remained well up from its low for the year so far of 103.24599, set on Feb. 4, and up as well from 103.3161, where it had ended 2013.

Its yield to worst stood at 5.394%, up from 5.333% the previous Friday and from its lowest level for the year so far, 5.191%, recorded on Feb. 27. All of those levels were still well down from the index's high yield for the year of 5.735%, set on Feb. 4, and down as well from 5.671% at the end of 2013.

The index's spread to worst over comparable Treasury issues stood at 412 basis points on Friday, out from 399 bps the previous Friday and from 395 bps set on March 6, its tightest level of the year. It was in from its wide point for the year so far, 444 bps, set on Feb. 4, as well as the 418 bps spread seen on the last day of 2013.

Coal carnage continues

Back on a sector-by-sector basis, Advantage Data meanwhile showed the bonds of coal-mining companies (down 1.02%) with the worst performance among any of the significantly sized sectors for a second straight week. Unusually, its loss exactly matched the previous week's 1.02% retreat, which had been a sharp reversal of the temporarily strong trend seen over the two weeks before that, when coal had risen 1.42% in the week ended Feb. 28 and by 0.80% in the week ended Feb. 21 - the best finisher among the major sectors in each of those weeks. Those two solid rises, in turn, had contrasted sharply with the weakness the volatile sector had shown over a period of weeks earlier in the year, including having been the absolute worst-performing sector in several of those weeks.

The primary metals processing and transportation equipment manufacturing sectors (each down 0.46% on the week) and the food stores and lodging sectors (both down 0.44%) rounded out the week's Bottom Five list of the worst-performing sectors.

It was lodging's fourth consecutive week among the losers, having also been there the previous week with a 0.37% loss.

The food stores cluster, on the other hand, had been the single best major-sector performer during the week ended March 7, when it had jumped by a robust 1.29%, helped by recent big news coming from the supermarket industry - the pending $9 billion acquisition of the giant Safeway Inc. by rival Albertsons' corporate parent, Cerberus Capital Management.

On the upside, with the food stores having fallen, real estate (up 0.26%) was the top performer among the major sectors. It was real estate's second straight week among the elite finishers, having also been there the week before with a 0.28% return.

Also showing strength in the latest week were the printing and publishing and wholesale durable goods distributors sectors, both of which were up by 0.25%, as well as insurance carriers (up 0.23%) and paper manufacturing (up 0.16%).

It was the printing group's third straight week among the Top Five performance leaders, having been there the week before with a 0.51% gain, on top of the 1.19% rise in the week ended Feb. 28 gain.

But the insurers had been among the worst performers among the key sectors the week before, with a 0.29% loss.

Printers stay strong on year

With 11 weeks in the books for 2014 so far, printing and publishing (up 4.42%) was the best year-to-date performer among the significantly sized sectors for a seventh week in a row, helped by its third straight Top Five performance among the weekly gainers, as noted.

The other year-to-date leaders behind the printers remained in the same order of ranking they had held the week before - petroleum refining (up 4.29%) in the runner-up slot, paper manufacturing (up 3.56%) in third place and food stores (up 3.19%) as fourth-best, all for a second consecutive week. The grocers remained among the year-to-date leaders despite their poor showing on the week, as noted.

Telecommunications (up an even 3%) remained as fifth-strongest on the year so far for a fifth consecutive week.

Among the underachievers, coal's second straight big slide on the week, as noted, kept the sector back down at the bottom of the pile on a year-to-date basis (down 0.22%) for a second consecutive week and for six weeks out the last seven.

Real estate (up 1.39%), despite its second consecutive relatively strong Top Five weekly performance, as noted, remained as the second-worst finisher for 2014 so far among the key sectors.

Miscellaneous retailing (up 1.43%) fell to third-worst, despite having not been among the worst laggards the week before.

It was followed by holding companies and investment offices (up 1.66%), which was fourth-worst for a second straight week, and by fifth-worst transportation equipment manufacturing (up 1.77%), which had not been among the worst year-to-date performers the preceding week.

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