Advantage Data: Insurance, metals, electronics led key junk sector last week; health care sickly

By Paul Deckelman

New York, March 8 - The high-yield market extended its comeback in the week ended Friday from the recent stretch of weakness, according to statistics supplied to Prospect News by Advantage Data Inc.

The junk industry sector returns made it three consecutive weeks on the upside following four weeks on the downside, and the market came further off the lows to which it had slid around the middle of February.

The three weeks of solid gains would now seem to represent a definitive return to the pattern of strength seen before the four-week losing streak that lasted from the week ended Jan. 22 through the week ended Feb. 12. Prior to those four bad weeks, junk had shown a 10-week winning streak, which dated from mid-November through mid-January.

Looking at a longer timeframe, there have now been only seven downturns in the last 28 weeks and just eight in the last 34. It is looking like the sizable rebound seen in the most recent three weeks represents another big momentum change, back to the positive side, rather than just a temporary interlude in a more bearish environment.

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 securities tracked - bonds of insurance carriers, metals mining and production companies and electronics manufacturers turned in the strongest showings.

Major sectors strengthen

None of the major sectors finished in the red this past week, although health care services and precision instrument manufacturers had notably small returns relative to everyone else.

Of the 72 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 70 had positive returns and only two had negative results on the week, a continuation and strengthening of the trend seen in the previous week, ended Feb. 26, when 64 sectors had finished in the black and just eight were in the red.

All 30 of the significantly sized sectors were in positive territory in the latest week, against no negatives, as noted - an extension of the trend seen the previous week when 29 sectors showed gains against just one loss. It was the second such clean sweep in three weeks.

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, continued to improve for a third straight week, in fact breaking through to establish a new peak level for 2010 so far.

Insurance, metals, electronics lead the way

The best-performing major sector on the week was insurance carriers, which posted a 1.64% return; it had also been among the top sectors the week before with a 0.77% gain.

Insurance was followed by metals mining and electronics manufacturing, which each were up by 1.58% on the week, and metals production, with a 1.45% gain.

Other standouts last week included oil and gas drilling (up 1.39%), miscellaneous retailing (up 1.30%) and investment and holding offices (up 1.29%).

Electronics manufacturing and miscellaneous retailing had each also been among the leaders the previous week, with gains of 0.77% and 0.72%, respectively, and in the week before that as well, ended Feb. 19, posting respective advances of 2.03% and 3.46%.

On the downside, no major sectors actually finished in the red this past week, as noted.

The weakest performer was health care, up a meager 0.27%, followed by precision instrument makers - chiefly medical device companies - (up 0.36%), real estate (up 0.52%), publishing (up 0.57%) and food stores (up 0.61%).

Real estate had also been among the weak finishers the week before, with a very modest 0.17% gain. However, the precision instruments companies had been among the leading sectors that week, with a 0.84% advance, although the grouping has now been among the weakest finishers in two weeks out of the last three.

Financials top yearly results

On a year-to-date basis so far, financial sectors continue to show the strongest performance among the significantly sized sectors, led by insurance carriers (up 7.15%), depositary institutions (up 5.97%), nondepositary institutions (up 5.59%), brokers and exchanges (up 4.76%) and investment and holding offices (up 4.68%).

Other big cumulative gainers, with nine weeks now in the books and 43 to go, include metals mining (up 4.65%), oil and gas drilling (up 4.28%) and various manufacturing sectors - chemicals (up 3.44%), electronics (up 3.20%), paper (up 3.06%) and transportation equipment (up 3.05%).

No major sector was in the red on a year-to-date basis in the latest week.

Publishing (up 0.97%), health care services (up 1.02%), petroleum refining (up 1.05%), business services (up 1.16%) real estate (up 1.22%) and food stores (up 1.25%) lagged behind all of the other major sectors.

Key market indicator at new high

Looking at the overall domestic high-yield market, junk bonds, as measured by the Merrill Lynch High Yield Master II Index, continued their comeback from their February lows, posting a robust 1.212% one-week gain as of the close on Friday to end the week with a year-to-date return of 2.811% - up from 1.58% at the close of the previous week, and up as well from the previous 2010 week-ending peak, 2.281%, notched in the week ended Jan. 15.

By hitting a new high, the index thus also completed its comeback from its 2010 low-point, the 0.357% year-to-date loss to which the index had fallen in the week ended Feb. 12.

The average price of a high-yield issue covered by the Master II stood at 96.609 at Friday's close, with a yield to worst of 8.75% and a spread to worst of 646.002 basis points over comparable Treasuries - versus a price of 95.677, a yield of 8.93% and a spread of 674.885 bps at the end of the previous week.

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