Advantage Data: Coal carnage continues as junk major sectors slide again during week

By Paul Deckelman

New York, Nov. 19 - The high-yield market last week saw its second consecutive weekly loss and its third such downturn in four weeks, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc. As had been the case in the previous week, ended Nov. 9, the latest results showed a clear majority of the sectors ending on the downside.

Recent choppiness in the market - a "down week," followed by an "up" week, and then two more "down" weeks - follows a string of three straight weekly gains dating back to early October, and before that - until a rare weekly loss was recorded in late September - a dazzling 16-week winning streak stretching all the way back to early June.

On a longer-term basis, last week was the eighth weekly loss in the 46 completed weeks since the start of the year, versus 38 advances.

Of the 66 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 58 finished in the red last week, while just seven sectors ended in the black, and one other sector was unchanged, posting neither a gain nor a loss for the week.

That was a continuation and a considerable strengthening of the pattern seen the week before, when 43 sectors ended on the upside, 21 were on the downside and one was unchanged. In the interim, Advantage Data recalculated and slightly expanded its roster of sectors, bringing the total number of sectors that it follows up to 66 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; 28 of those sectors ended in the red, while only two were in the black. The week before, 22 of those bigger sectors had ended better on the week, seven showed losses and one - amusement - was unchanged on the week with a flat 0.00% reading.

Among specific major sectors in the latest week, bonds of coal mining companies - which only recently had been posting the best showings of any of those significantly sized sectors - went the other way for a second consecutive week and once again had the biggest loss. On the upside, such as it was, only wholesale durable goods distributors and non-depository credit institutions managed to eke out small gains on the week.

Statistical indicators of general market performance were down for a second consecutive week, including the total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index.

Index turns lower

The Merrill index showed junk bonds with a one-week loss of 0.708% as of the close Friday, following the previous week's 0.273% downturn. There have now been 34 weekly gains so far this year, against 12 weekly losses.

The index's year-to-date return had declined to 12.111% as of Friday from the previous week's 12.91%. Those levels also remained off from this year's peak level so far, 13.455%, set on Oct. 18, although they remain well above last year's peak level of 6.362%, recorded on July 26, 2011, and the 2011 year-end reading of 4.383%.

Among its other components, the index showed an average price of 102.141 on Friday, down from 103.028 the week before, while its yield to worst stood at 6.755%, versus the week-earlier yield of 6.573%. Its spread to worst over comparable Treasury issues widened to 605 basis points from 585 bps the week before.

Coal stays ice-cold

Back on a sector basis, Advantage Data meanwhile showed bonds of coal companies having suffered the largest loss among the key sectors last week, plunging 2.35%.

It was the second consecutive big loss for coal, following the 2.01% slide seen in the week ended Nov. 9. That, in turn, had snapped a string of five straight weeks in which the coal operators had been among the best finishers, dating back to the week ended Oct. 12, including four straight weeks ended Nov. 2 during which they had led all of the large sectors.

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 five-week stretch. In fact, going all the way back to mid-May, there has been a virtually unbroken string of some six months in which coal has been either among the top finishers or among the worst performers, often alternating between the two extremes on a week-by-week basis - 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 losers on the week included oil and gas exploration and production (down 0.70%), telecommunications (down 0.67%), building construction (down 0.66%) and lodging (down 0.63%). Along with coal, energy E&P was among the Bottom Five worst performers for a second straight week, having also had that unwanted honor the week before with a 0.46% loss.

On the upside, only wholesale durable goods distributors (up 0.09%) and non-depository credit institutions (up 0.06%) actually finished in the black this past week among the significantly sized sectors.

The non-depository financials had also been there the week before with a 0.39% rise.

The Top Five list of best performers for the most recent week was filled out by sectors which showed only relatively smaller declines than most others, including machinery and computer manufacturing (down 0.09%), automotive services (down 0.10%) and two financial sectors that each lost 0.16% - the depository financial institutions and holding and other investment offices.

Real estate leads for year

Forty-six weeks into 2012, real estate remains the best-performing major sector on a year-to-date basis, with a cumulative return of 30.71% - its 24th consecutive week in the top spot and on a longer-term basis, the 39th week there out of the past 42.

Depository financial institutions moved into the runner-up spot with a 21.55% cumulative return, while building construction was in third place for a sixth straight week with a 21.48% return for the year. Insurance carriers showed a 21.38% gain on the year, and non-depository credit institutions were up by 17.33%.

Among the underachievers, coal remained in the red for a 12th straight week, finishing down 6.77%. 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 4.51%), oil and gas exploration and production companies (up 6.58%) and electronics manufacturers (up 7.59%), were lagging behind on a year-to-date basis, relatively speaking, as were five other sectors with 2012 returns over 9% but below 10% - transportation equipment manufacturing, machinery and computer manufacturing, petroleum refining, miscellaneous retailing and metals processing.

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