Advantage Data: Coal, insurance outperform as junk major-sector rebound continues

By Paul Deckelman

New York, Oct. 15 - The high-yield bond market recorded its second consecutive week of gains last week, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

The latest data showed a majority of the sectors notching advances, as the market continued to rebound from the rare downturn seen during the week ended Sept. 28 - its first such losing week after 16 consecutive weeks on the upside, dating back to early June.

On a longer-term basis, it was the 18th advance in the past 19 weeks. There have been just five losing weeks in the 41 completed weeks since the start of the year, versus 36 advances.

However, the latest week's count of positive-versus- negative sectors reflected a modest softening from the previous week's stronger levels.

Of the 66 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 50 finished in the black last week, while 16 sectors ended in the red.

That was a slight weakening from the results of the week before, ended Oct. 5, when 55 sectors ended on the upside, 12 were on the downside and one sector was unchanged on the week, showing neither a gain nor a loss (in the interim, Advantage Data recalculated and contracted its roster of sectors, bringing the total number of sectors that it follows down to 66 this past week from 68 previously).

That somewhat moderating trend seen in the overall market was also reflected in 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; of that group, 22 ended in the black and eight were in the red - versus the previous week, when 28 of the sectors ended better on the week and just one showed a loss, while a second was unchanged.

Among specific major sectors in the latest week, bonds of coal mining companies and insurance carriers had the best showings of any of the significantly sized sectors, while electronics manufacturing continued its recent struggles.

Statistical indicators of general market performance were mixed on the week, although the total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, showed a second straight week on the upside.

Index extends gains

The Merrill Lynch index showed junk bonds with a one-week gain of 0.030% as of the close Friday, versus the previous week's 0.494% advance. That in turn had followed a drop of 0.603% in the week ended Sept. 28, the first such downturn after five consecutive weeks of gains before that. There have now been 32 weekly gains so far this year, against nine weekly losses.

The index's year-to-date return had strengthened to 12.717% as of Friday from the previous week's 12.523%, although Friday's finish remained a little off from this year's peak level so far, 12.814%, set on Sept. 19. Despite the recent fluctuations, those 12%-plus levels have been the highest seen in over 22 months, since the 15.19% year-to-date return notched back on Dec. 31, 2010. The index had finished 2011 with a 4.383% return, and its highest reading last year was 6.362%, recorded on July 26, 2011.

Among its other components, the index showed an average price of 103.574 on Friday, up from 103.546 the week before, while its yield to worst stood at 6.419%, versus the week-earlier yield of 6.451%. Its spread to worst over comparable Treasury issues was 570 basis points, in from 572 bps the week before.

Coal heats up

Back on a sector basis, Advantage Data meanwhile showed bonds of coal mining companies having the best return for the week of any of the significantly sized sectors, as they rose by 0.86%. It was the second straight week the miners were among the best performers, having made the Top Five the week before with a 0.74% gain.

And proving that it is easily the most volatile of any of the key market sectors, coal had been the single worst-performing significantly sized grouping in the two weeks immediately before that. In fact, going all the way back to mid-May, there has been a virtually unbroken stretch of many months in which coal has been either among the top finishers, alternating with weeks in which it has been among the worst performers - and in a number of those weeks, it has been either the single best or the single worst performer of all.

Away from coal, other notable gainers in the past week included insurance carriers (up 0.74%), electric and gas utilities (up 0.42%), metals mining (up 0.41%) and non-depository financial institutions (up 0.23%).

It was the second straight week among the leaders for metals mining, which had actually been the top finisher in the week ended Oct. 5, with a 1.46% gain. However, the insurers, utilities and non-depository financials had each been among the Bottom Five the week before, with anemic returns of 0.04%, 0.14% and 0.10%, respectively.

The most recent week's worst performers were meantime led by electronics manufacturing, which lost 0.29%. It was the sector's third straight week among the worst underachievers, having made it the week before with a flat 0.00% reading, neither a gain nor a loss, and in the Sept. 28 week, with a 0.74% plunge.

Others on the downside in the most recent week were financial brokers and exchanges (down 0.17%), lodging (down 0.14%), health care (down 0.12%) and food stores (down 0.07%). It was the grocers' second straight week among the laggards; the group had, in fact, been the worst-performing major sector the week before, when it was down 0.05%.

Real estate leads for year

Forty-one weeks into 2012, real estate remains the best-performing major sector on a year-to-date basis, with a cumulative return of 30.26% - its 19th consecutive week in the top spot and on a longer-term basis, the 34th week there out of the past 37.

Insurance moved into the runner-up spot with a 23.94% cumulative return, supplanting building construction, which had held the Number-Two spot for the previous two weeks, and over the longer term in 16 weeks out of the last 18, but which fell into third place this past week with an 18.78% return for the year.

Also showing some notable year-to-date strength were non-depository financial institutions (up 16.65%), depository financials (up 15.85%) and automotive services (up 14.87%).

Among the underachievers, coal remained in the red for a seventh straight week (down 6.58%), but it was the only significantly sized sector to be showing a loss on the year so far. With most other sectors already posting double-digit percentage gains, food stores (up 7.19%), oil and gas exploration (up 9.00%), electronics manufacturing (up 9.04%), machinery and computer manufacturing (up 9.09%), petroleum refining (up 9.20%) and financial brokers and exchanges (up 9.70%) were - relatively speaking, anyway - lagging behind on a year-to-date basis.

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