Electronics, metals manufacturers lead junk bond market's major-sector slide; coal still strong

By Paul Deckelman

New York, Oct. 29 - The high-yield market last week saw its first weekly loss after three straight gains, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

The latest results showed a strong majority of the sectors ending on the downside - in contrast to the recent rebound the market had been enjoying since its last rare downturn, during the week ended Sept. 28. The latter loss had been the first such losing week after 16 consecutive weeks on the upside, a winning streak dating back to early June.

On a longer-term basis, it was just the sixth weekly loss in the 43 completed weeks since the start of the year, versus 37 advances.

Of the 72 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 46 finished in the red last week, while 22 sectors ended in the black. Additionally, four other sectors did not generate any meaningful activity.

That was a decisive reversal of the results seen the week before, ended Oct. 19, when 62 sectors ended on the upside and only three were on the downside (in the interim, Advantage Data recalculated and expanded its roster of sectors, bringing the total number of sectors that it follows up to 72 this past week from 65 previously).

That losing 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; 22 of those sectors ended in the red and eight were in the black- versus the previous week, when all 30 of the sectors had ended better on the week and none showed a loss.

Among specific major sectors in the latest week, bonds of electronics manufacturing companies continued their recent struggles, while coal mining companies again had the best showing of any of those significantly sized sectors.

Statistical indicators of general market performance were down on the week after having been better across the board the week before. The total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II Index, posted its first loss after three straight gains.

Index turns lower

The Merrill Lynch index showed junk bonds with a one-week loss of 0.329% as of the close Friday, versus the previous week's gain of 0.604%. There have now been 33 weekly gains so far this year, against 10 weekly losses.

The index's year-to-date return had declined to 13.025% as of Friday from the previous week's 13.398%. Those levels also remained off from this year's peak level so far, 13.455%, set on Oct. 18. Even so, those recent 13%-plus levels have been the highest seen in nearly 23 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 103.555 on Friday, down from 104.059 the week before, while its yield to worst stood at 6.314%, versus the week-earlier yield of 6.214%. Its spread-to-worst over comparable Treasury issues widened to 554 basis points from 544 bps the week before.

Electronics short-circuit

Back on a sector basis, Advantage Data meanwhile showed bonds of electronics manufacturing companies having the worst return for the week of any of the significantly sized sectors, as they fell by 0.80%. It was the sector's fifth straight week among the worst performers, and its third straight week of being down at the very bottom, having posted a paltry 0.02% return in the week ended Oct. 19, when all of the sectors showed gains, however small, while in the week before that, ended Oct. 12, it had lost 0.29%.

Other underachievers in the most recent week were metals producers (down 0.54%), health care (down 0.49%), precision instrument manufacturing (down 0.33%) and lodging (down 0.30%).

It was the second consecutive week among the downsiders for the precision instrument manufacturers - chiefly medical device makers - which had been there the week before with a relatively modest 0.21% increase. It was the third straight week among the Bottom Five for health care, which had shown a 0.22% gain the week before.

Coal stays hot

Among the gainers, the bonds of coal mining companies had the best return for the week of any of the significantly sized sectors, as they rose by 0.73%.

It was the fourth straight week the miners were among the best performers, and the third consecutive week they were right at the top of the pile, having led all major sectors the week before with a sizzling 2.01% return, and having posted an 0.86% gain the week before that.

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 four-week stretch. In fact, going all the way back to mid-May, there has been a virtually unbroken string of nearly five 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 building construction and insurance carriers (each up 0.27%), depository financial institutions (up 0.13%) and food stores and machinery and computer manufacturers (both up 0.08%).

Real estate leads for year

Forty-three weeks into 2012, real estate remains the best-performing major sector on a year-to-date basis, with a cumulative return of 27.59% - its 21st consecutive week in the top spot and on a longer-term basis, the 36th week there out of the past 39.

Depository financial institutions surged into second place with a 22.59% cumulative return, surpassing insurance carriers, which had held the runner-up spot for two weeks before that. Building construction was in third place for a third straight week with a 21.79% return for the year; before that, the builders had held down the Number-Two spot for two weeks and, over the longer term, in 16 weeks out of the prior 18.

Insurance fell to fourth place with a 16.74% return for the year, followed closely by investment and holding offices at 16.73%.

Among the underachievers, coal remained in the red for a ninth straight week (down 3.41%), despite its strong showing on the week. But it remained 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 7.79%), machinery and computer manufacturing (up 8.33%) and recent worst performer electronics manufacturing (up 8.95%) were - relatively speaking, anyway - lagging behind on a year-to-date basis.

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