Advantage Data: Financials top junk sector in first week of 2010; almost all areas continue rise

By Paul Deckelman

New York, Jan. 11 - High-yield industry sector returns started the new year pretty much as they had ended the old one, extending their recent gains in the first trading week of 2010, according to statistics supplied to Prospect News by Advantage Data Inc.

Virtually all sectors - significantly sized or otherwise - ended the week higher, some by multiple points. It was the ninth straight week of upside movement, dating back to mid-November.

Over the longer-term, the high-yield universe thus continued its recent pattern of strength, with advancing sectors outnumbering the losers now in 17 weeks out of the last 20 and in 22 weeks out of the last 26.

In the latest week, among the more significantly sized broad-industry sectors - as measured by the number of issuers, the collective number of issues and the total face amount of bonds tracked - financial sectors dominated, notably insurance carriers, non-depositary financial institutions, investment and holding offices and brokerages and exchanges. Non-financials finishing high up on the leaderboard included amusements and transportation manufacturing.

On the downside, no significant sectors showed any losses, and even the relatively smallest gains of such areas as food stores, automotive services and coal mining registered returns of nearly a full percentage point, demonstrating the strength of the week's market.

Of the 71 broad-industry sectors into which Boston-based Advantage Data currently divides its high-yield universe, 69 had positive returns and just two had negative results on the week. That continued and greatly strengthened the trend seen in the previous week, ended Thursday, Dec. 31, when 58 sectors finished in the black, while 11 were in the red and two sectors had flat, 0.00% readings.

There was no trading on Friday, Jan. 1, due to the legal holiday that closed the financial markets.

Among the 30 significantly sized sectors, all 30 had positive returns in the latest week, against zero losers, improving on the previous week's 28-to-2 positive split.

On a statistical basis, the junk market's year-to-date performance, as measured by the widely followed Merrill Lynch High Yield Master II index, sizzled in the first week of the year, translating to an annualized return - likely unsustainable over time - far in excess of even 2009's record-breaking final figure well north of the psychologically significant 50% mark.

Financial sectors doing fine

Among the specific positive major sectors, financials dominated, led by insurance carriers (up 4.45%), and including non-depositary financial institutions such as non-bank business and personal credit providers (up 4.16%), investment and holding offices (up 3.36%) and financial brokers and exchanges (up an even 3%).

It was the second straight week of strong gains for the insurers and the non-depositary institutions, which had risen by 0.88% and 1.46%, respectively, in the last week of 2009.

Non-financials turning in strong results included amusements (up 3.36%) and transportation equipment manufacturing (up 3.23%). Amusements had a particularly sharp rebound, after having been among the weakest sectors in the previous week with a paltry 0.01% gain.

Food stores lead the laggards

With no significant sectors seen among the two that were showing losses, the bottom positions on the 30-sector list of major groupings were occupied by sectors merely showing relatively smaller gains on the week than their peers.

The smallest was food stores, up 0.78% on the week - which would have been at least a respectable, if not necessarily spectacular, gain most other weeks, but which paled in comparison with the multiple-points advances of other sectors, as cited. The grocers' group had also been among the most anemic finishers in the Dec. 31 week, when it returned just 0.11%.

Other sectors showing returns of less than a full percentage point in the most recent week were automotive services (up 0.80%), coal mining (up 0.93%), wholesale durable goods distributors (up 0.97%) and food manufacturing (up 0.99%). The wholesale durable goods distributors had also been among the weak-kneed to end the year, up just 0.11%.

Results for year mirror weekly results

With just one trading week completed - which started on a Monday, the first day back after the holiday break - 2010 year-to-date returns are temporarily identical to the weekly returns.

In 2009, real estate had been the top year-to-date performer of any sector, significantly sized or otherwise, with a sizzling 201.34% cumulative bulge. Other leaders were chemical makers (up 153.11%) transportation equipment makers (up by 132.94%) and financial brokerages and exchanges, up 115.05%.

Last year's least effective performers had been the depositary financial institutions sector, including banks and savings companies, up a relatively modest 25.77%, followed by food stores (up 28.56%) and precision instruments manufacturers (up 30.28%).

Key market indicator surges

Looking at the overall domestic high-yield market, junk, as measured by the Merrill Lynch High Yield Master II Index, had a scorching one-week return of 2.016% as of the close on Friday; on an annualized basis, this would translate to 104.832% - a rate which is not sustainable over time, according to the consensus of opinion by high-yield market participants.

Such a rate, were it possible to be achieved, would be almost double the blistering 57.512% which the index had returned for 2009 as of Dec. 31 of the old year, which itself was by far and away a new junk market record.

The average price of a high-yield issue covered by the Master II stood at 97.247 at Friday's close, with a spread to worst of 617.302 basis points over comparable Treasuries and a yield to worst of 8.575% - versus a price of 95.468, a spread of 649.98 bps and a yield of 9.047% at the end of the previous week, on the last day of 2009.

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