Advantage Data: Coal miners power junk market's continued major-sector rally; real estate retreats

By Paul Deckelman

New York, May 12 - The high-yield market recorded its eighth straight weekly advance last week, according to sector-tabulated weekly bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Of the 59 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 49 finished in the black during the week ended Friday, while 10 sectors were in the red.

That was about in line with the trend seen the week before, ended May 2, when 50 sectors posted gains and nine had negative results.

A majority of the sectors have now been on the plus side in 17 weeks out of the 19 weeks so far this year, versus just two weeks in which more sectors were down than up - in the weeks ended Feb. 3 and March17.

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 continued to show strength this past week, with 28 of the 30 closing in the black, while just two finished in the red.

That was improved a little from the previous week, when 26 of the sectors had shown gains, and four were unchanged.

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 16 weeks since the start of the year, versus three downturns.

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

Coal, despite its solid performance on the week, remained down at the bottom on a year-to-date basis for a 10th straight week, and a 14th week out of the last 15.

Electric and gas utilities - a recently constant fixture on the weekly Top Five list of best-performing sectors in any given week - moved into the lead on a year-to-date basis, dethroning the paper manufacturers, who previously had held that top spot for four consecutive weeks and in five weeks out of the prior six.

Index extends gains

Statistical indicators of general market performance meanwhile were higher versus their levels the previous Friday for a second straight week, after having been mixed for three weeks in a row prior to that.

Among those indicators was the widely followed Merrill Lynch High Yield Master II index, which posted an eighth straight weekly gain after two straight weekly losses in early March. It rose by 0.282%, following the previous week's 0.249% gain.

The index has now seen 15 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 4.097%, its 10th consecutive new peak level for 2014. It was up from the previous Friday's 3.804% return. 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 104.8651 on Friday, up from 104.702179 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 5.179%, down from the previous Friday's 5.22%, but still up from its lowest level for the year so far, 5.172%, recorded on April 29. 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.

Its spread to worst over comparable Treasury issues stood at 389 basis points on Friday, unchanged from the prior Friday. It thus remained wider than its tightest level seen so far this year, the 383 bps recorded on April 3 and again on April 22. 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.

Coal gets hot

Back on a sector-by-sector basis, Advantage Data meanwhile showed the bonds of coal mining companies having jumped by 1.16%, the best of any of the significantly sized sectors. It was especially notable given the usual weakness in the coal sector - the grouping had been among the Bottom Five worst performers the week before with a 0.04% loss, and was also among the laggards the week before, ended April 25, with an anemic 0.02% gain.

Also showing strength this week were electric and gas utilities (up 0.57%), depository financial institutions (up 0.51%), telecommunications (up 0.50%) and transportation equipment manufacturing (up 0.45%).

It was the third straight week that the utilities sector has been among the top gainers; it was also there the week before with a 0.64% rise and had, in fact, led all of the significantly sized sectors with an 0.47% improvement during the April 25 week.

On the downside, real estate had the worst showing among the major-sized sectors, losing 0.28%. It was a sharp reversal for the sector, which had been among the better performers the week before with a 0.35% gain.

Other significantly sized sectors struggling during the week included amusement and recreation, which was down by 0.08% - the only key sector other than real estate to actually finish in the red on the week.

Sectors with relatively small gains versus those of other sectors rounded out the latest week's Bottom Five list - automotive services (up 0.02%), financial brokers, dealers and exchanges (up 0.04%) and building construction (up 0.09%).

It was the latter sector's second straight week among the underachievers; the builders had also been there the week before - that was actually the worst large-sized sector that week - with a 0.09% drop.

Utilities grab lead for year

With 19 weeks in the books for 2014 so far, the electric and gas utilities sector - one of the week's stronger performers in each of the last three weeks, as noted - parlayed that recent strength into a first-place finish on a year-to-date basis this past week. It showed a 5.94% cumulative gain, good enough to move up by one notch in the rankings, after having been in the runner-up spot in each of the previous two weeks.

As the utilities made their move, that pushed paper manufacturing (up 5.70%) out of the top slot that it had occupied over the previous four weeks, and into second-place.

Petroleum refining (up 5.46%) was third-best for a second straight week, followed by Number-Four printing and publishing (up 4.96%), which had not been among the leading 2014 sectors the week before.

Precision instrument manufacturing (up 4.90%) held down the fifth-best slot for a second straight week.

On the downside, coal mining - despite its rare strong showing on the week, as noted - continued to languish at the bottom of the pile with a 0.93% gain on the year, as it remained the absolute worst performer among the major sectors year to date for a 10th straight week and for a 14th week in the last 15. However, it did move back into the black for the year so far, after having been in the red for the previous eight weeks, starting with the week ended March 14.

Other than coal, finance-oriented sectors dominated the list of the year's worst performers so far.

Real estate (up 2.18%) was second-worst for a third consecutive week.

The financial broker, dealer and exchanges sector (up 2.20%) was third-worst on the year for a second straight week.

Holding companies and other investment offices (up 3.05%) were fourth-worst among the key sectors on the year, although the grouping had not been among the worst cumulative performers the week before.

The previous week's fourth-worst sector, non-depository credit institutions, improved to just fifth-worst, relatively speaking, with a 3.06% cumulative gain on the year.

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