Advantage Data: Lodging leads junk's continued major-sector rally

By Paul Deckelman

New York, May 27 - The high-yield market recorded its 10th straight weekly advance last week, according to sector-tabulated weekly bond-performance statistics supplied to Prospect News on Tuesday by Advantage Data Inc.

Of the 58 broad-industry sectors into which Boston-based Advantage Data currently divides its high-yield universe, 49 finished in the black during the week ended Friday, seven sectors were in the red and another two were unchanged on the week, showing neither a gain nor a loss.

That represented a modest retreat from the more solidly positive trend seen the week before, ended May 16, when 56 sectors posted gains and just three had negative results. In the interim, Advantage Data recalculated and slightly contracted its overall sector roster.

A majority of the sectors have now been on the plus side in 19 weeks out of the 21 weeks so far this year, versus just two weeks - the weeks ended Feb. 3 and March 17 - in which more sectors were down than up.

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, mostly continued to show strength this past week, with 26 of the 30 closing in the black, three finishing in the red and one unchanged.

Those results were slightly easier than the previous week's, when 29 of the sectors had shown gains and only one was on the downside.

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

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

The paper manufacturing grouping moved into the lead on a year-to-date basis, dethroning electric and gas utilities, which had held the top spot for two consecutive weeks.

Coal mining remained down at the bottom on a year-to-date basis for a 12 straight week and a 16th week out of the last 17.

Index extends gains

For a second consecutive week, statistical indicators of general market performance meanwhile were mixed versus their levels the previous Friday. They had been higher across the board for two weeks in a row before that.

Among those indicators was the widely followed Merrill Lynch High Yield Master II index, which posted a 10th straight weekly gain after two successive weekly losses in early March. It rose by 0.055% following the previous week's 0.222% gain.

The index has now seen 17 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 4.385%. It was up from the previous Friday's 4.328% return, although down from the year-to-date peak level so far of 4.443%, recorded this past Tuesday. 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 104.8869 on Friday, down from 104.9639 the previous Friday and down as well from the 105.0349 seen on May 14, its high point for the year. But the price meantime stayed well up from its low for the year so far of 103.24599, set on Feb. 4, and was up as well from 103.3161, where it had ended 2013.

Its yield to worst stood at 5.16%, up from the previous Friday's 5.144% and up as well from its lowest level for the year so far, 5.111%, set on May 14. However, 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 394 basis points on Friday, a little wider than the 392 bps seen the prior Friday and wider as well than its tightest level seen so far this year, the 383 bps recorded on April 3 and again on April 22. But the spread was well in versus its wide point for the year so far, 444 bps, set on Feb. 4 and the 418 bps spread seen on the last day of 2013.

Lodging leads the way

Back on a sector-by-sector basis, Advantage Data meanwhile showed the bonds of lodging companies having risen by 0.73%, the best of any of the significantly sized sectors.

Also showing strength this week were real estate (up 0.33%), followed by the food manufacturing and metals mining sectors (both up 0.30%) and food stores (up 0.27%).

It was the second consecutive week among the Top Five best-finishing sectors for real estate, which had also been there the week before, when it had been up by 0.51%.

In contrast, both the food stores and metals mining sectors had been among the previous week's worst performers - metals mining the absolute worst among the large-sized sectors and the only one actually in the red that week with a 0.19% loss, while the food stores had helped to round out that week's Bottom Five list with an anemic 0.03% weekly gain.

On the downside among the key sectors in the latest week, coal mining did the worst, with 0.54% of red ink, followed by transportation equipment manufacturing (down 0.07%) and precision instrument manufacturing (down 0.03%). Building construction was unchanged, its 0.00% reading signaling neither a gain nor a loss, while insurance carriers were up a mere 0.04%.

It was coal's second week among the worst performers, having been there the previous week with a paltry 0.03% return, while the builders marked their fourth consecutive week among the Bottom Five; the sector had posted a meager 0.07% advance in the May 16th week.

Papermakers grab YTD lead

With 21 weeks in the books for 2014 so far, the paper manufacturing sector improved by one position to lead all of the significantly sized sectors on a year-to-date basis with a 7.12% return. The papermakers had previously held the runner-up spot for two consecutive weeks.

Petroleum refining (up 6.03%) moved up one slot into second place after having been third best over the three previous weeks.

Electric and gas utilities (up 5.39%) tumbled by two notches to just third best after having held the year-to-date top spot for the previous two weeks.

Printing and publishing (up 5.31%) was the fourth-strongest major sector for a third straight week.

Telecommunications (up 5.09%) moved up to the No. 5 position, despite not having been among the year-to-date leaders the week before.

On the downside, coal mining (down 1.22%) continued to languish at the bottom of the pile as the absolute worst performer among the major sectors for the year to date for a 12th straight week and for a 16th week in the last 17. It slipped back into the red after two weeks of barely showing a gain for the year so far, which in turn had followed an eight-week stretch, from the week ended March 14 through the week ended May 2, during which it had also posted cumulative losses each week.

Also among the underachievers, real estate (up 3.11%) was second worst for a fifth week in a row.

Miscellaneous retailing (up 3.16%) fell to third worst among the major sectors, despite not having been among the worst laggards the previous week.

On the other hand, automotive services (up 3.23%) had the unwanted honor of being the fourth-worst major sector for a second consecutive week.

The financial broker, dealer and exchanges sector (up 3.37%) improved, relatively speaking; it was only the fifth-weakest sector after having been the third-worst for three weeks before that.

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