Advantage Data: Junk market major sectors' rebound continues; real estate rallies, coal caves in

By Paul Deckelman

New York, March 31 - The high-yield market continued its winning ways last week, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

The market posted its second consecutive weekly gain, as it continued to rebound from a rare loss recorded during the week ended March 14, That downturn was just its first setback since the week ended Jan. 31, snapping a five- week winning streak.

Since the beginning of this year, broad-market gains have now been seen in 11 weeks, versus the two downturns, the only ones to have been recorded so far this year.

In the latest week, 54 out of the 58 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black, with three ending in the red and one sector unchanged on the week, showing neither a gain nor a loss.

That represented a strengthening from the sectors' showing during the March 21 week, when 43 of the 57 sectors being tracked had posted gains, 13 showed losses and one sector was unchanged on the week. In the interim, Advantage Data recalculated and slightly expanded its sector roster.

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, also strengthened this past week, with 27 of the 30 closing in the black, while two finished in the red and one was unchanged.

That represented an improvement from the previous week, when 23 of the sectors had shown gains and the other seven had posted losses.

That more select grouping of the larger sectors generally moves up or down in tandem with the overall market, although from time to time there is a rare divergence, as happened during the week ended March 7, when those key sectors were down on the week while the overall sector roster showed more gains than losses. Those significantly sized sectors have now mostly shown gains in 10 weeks since the start of the year, versus three downturns.

In the latest week, real estate was the best performer among the significantly sized sectors, while coal mining did the worst.

Coal mining - hurt now by four straight weeks of poor showings - also remained the worst year-to-date performer among those major sectors for a fourth consecutive week, while paper manufacturing took over as the best year-to-date performer among the sectors, displacing the previous week's year-to-date champion, petroleum refining.

Index extends gains

In line with the stronger market performance shown by the behavior of the industry sectors, statistical indicators of general market performance meanwhile were higher across the board last week versus the previous Friday for a second consecutive week, after having been lower for the two weeks before that.

Among those indicators was the widely followed Merrill Lynch High Yield Master II index, which posted a second consecutive weekly gain after two straight weekly losses. It rose by 0.212%, on top of the 0.262% improvement in the week ended March 21. That stood in contrast to the 0.159% loss in the week ended March 14 and the 0.184% downturn the week before that.

The index has now seen nine 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 risen to 2.893% - a new high point for the year so far - from the previous Friday's 2.675%. 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 104.48591 on Friday, up from 104.4037 the previous Friday, although it remained down from the 104.915754 seen on Feb. 28, its high point for the year. However, it stayed 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 5.274%, down from 5.33% the previous Friday. However, it remained up 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 392 basis points on Friday, in from 395 bps the previous Friday, and matching its tightest level for this year so far, recorded on March 19. The spread was well in versus 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.

Real estate on a roll

Back on a sector-by-sector basis, Advantage Data meanwhile showed the bonds of real estate companies up by 0.77%, the best of any of the significantly sized sectors. Real estate accomplished the unusual feat of going for worst to first; in the week ended March 21, its 0.65% loss was the worst of any of the major sectors. And the week before that, ended March 14, the volatile sector had again been on top among the majors with a 0.26% advance.

Also showing strength this past week were holding companies and other investment offices (up 0.74%), metals mining (up 0.63%), lodging (up 0.53%) and depository financial institutions (up 0.47%).

It was the second straight week among the Top Five best-performing major sectors for depository financials, which had also been there the week before with a 0.38% gain.

Lodging, on the other hand, broke out of an extended slump that saw it among the Bottom Five worst-performing sectors for five straight weeks, including the period ended March 21, when it lost 0.26%.

On the downside, coal mining (down 0.74%) was among the biggest losers for a fourth consecutive week. It had lost 0.51% the week before.

Food stores (down 0.22%) was the only other key sector finishing in the red this week, while automotive services was unchanged. Non-computer electronics manufacturing (up a mere 0.03%) and the non-depository financial institutions and oil and gas exploration and production sectors (each up 0.05%) rounded out the underachievers list for the latest week.

The food stores sector, like coal, was a repeat visitor, ending among the laggards for a third straight week. The week before, it had been down 0.23%.

Automotive services, on the other hand, had been the previous week's best finisher among the significantly sized sectors, up by 0.56% that week.

Papermakers take YTD lead

With 13 weeks in the books for 2014 so far, the paper manufacturing sector was showing the best year-to-date cumulative return among the significantly sized sectors, up by 4.83%, followed by petroleum refining (up 4.72%), printing and publishing (up 3.71%), telecommunications (up 3.54%) and precision instrument manufacturing (up 3.51%).

The papermakers moved up by one notch to take over the top spot, from just second-best the week before. The sector traded places with the previous week's leader, petroleum refining, which fell to the runner-up spot.

Printing and publishing - which had been the year-to-date leader for seven consecutive weeks before being dethroned by the refiners during the March 21 week - remained third-best for a second straight week. Telecommunications was the fourth-best year-to-date finisher, also for a second week in a row.

Precision instrument manufacturing had not been among the year-to-date leaders the week before.

On the downside, coal mining continued to languish at the bottom with a 1.13% loss, as it remained the absolute worst performer among the major sectors year to date for a fourth straight week and for an eighth week in the last nine. It was the only key sector showing a loss for the year.

Real estate (up 1.13%), despite its strong weekly performance, as noted, remained the second-worst cumulative performer for a fourth straight week.

Other laggards included holding companies and other investment offices (up 2.09%), third-worst for a second straight week, followed by fourth-worst non-depository credit institutions and fifth-worst miscellaneous retailing (both up by 2.14% on the year).

Neither of the two latter sectors had been among the worst finishers the year before.

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