Advantage Data: Coal comes back as major sectors rally in latest week

By Paul Deckelman

New York, Nov. 26 - The high-yield market last week bounced back after consecutive losses in the two weeks immediately before that. This marked only the second week on the upside over the last five weeks, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

In sharp contrast to the two previous weeks, the latest results showed an overwhelming majority of the sectors coming in as winners for the week.

The recent choppiness in the market follows a string of three straight weekly gains dating back to early October and, before that, a sparkling 16-week winning streak, stretching all the way back to early June.

On a longer-term basis, last week was the 39th weekly gain in the 47 completed weeks since the start of the year, versus eight losses.

Of the 65 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 61 finished in the black last week, while only four sectors finished in the red.

That was a dazzling comeback from the pattern of weakness seen the over two weeks before that, including in the week ended Nov. 16, when 58 sectors ended on the downside, just seven were on the upside and one other sector was unchanged.

In the interim, Advantage Data recalculated and slightly contracted its roster of sectors, bringing the total number of sectors that it follows down to 65 this past week from 66 previously.

That rebound 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 outstanding. Twenty-eight of those sectors ended in the black while only two were in the red. The week before, 28 of those bigger sectors had ended lower on the week and just two finished with gains.

Among specific major sectors in the latest week, bonds of coal mining companies, which have recently been the most volatile sector, turned in a strong performance in contrast to the big losses seen over the prior two weeks. On the downside, non-depository credit institutions and insurance carriers were the only key sectors showing losses.

Statistical indicators of general market performance rose for the first time in three weeks, including the total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II Index.

Index turns higher

The Merrill index showed junk bonds with a one-week gain of 0.657% as of the close Friday, following the previous week's 0.708% downturn, which had been its second straight weekly loss. There have now been 35 weekly gains so far this year, against 12 weekly losses.

The index's year-to-date return had risen to 12.836% as of Friday from the previous week's 12.111%. Those recent levels remained off from this year's peak level so far, 13.455%, set on Oct. 18, although they also remained 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 102.665 on Friday, up from 102.141 the week before, while its yield to worst stood at 6.552%, versus the week-earlier yield of 6.755%. Its spread-to-worst over comparable Treasury issues tightened to 580 basis points from 605 bps the week before.

Coal warms up

Back on a sector basis, Advantage Data showed bonds of coal companies having posted a 1.62% return last week, the biggest of any of the significantly sized sectors. That was in sharp contrast to the 2.35% plunge seen the week before, which had been the worst among the major sectors for a second straight week following the 2.01% nosedive in the week ended Nov. 9.

Those back-to-back slides, 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.

Away from coal, other notable gainers on the week included chemical manufacturing (up 0.92%), financial brokers and exchanges (up 0.78%), health care (up 0.74%) and lodging (up 0.71%). The latter sector, like coal, had been among the worst finishers the previous week, when it lost 0.63%.

On the downside, only the non-depository credit institutions (down 0.19%) and insurance carriers (down 0.17%) actually finished in the red among the major groupings - the latter sector probably beginning to feel the fallout from Hurricane Sandy.

The non-depository financials had actually been among the best performers over the two previous weeks, including the week ended Nov. 16, when it was up 0.16%.

Rounding out the latest week's Bottom Five were several sectors posting only relatively small gains - paper manufacturing (up 0.14%) and the holding and other investment offices and food stores sectors (each up 0.17%). The holding companies sector had been among the best performers the previous week, relatively speaking, showing only a small loss (0.16%) in an otherwise very negative overall week.

Real estate still leads

Forty-seven weeks into 2012, real estate remains the best-performing major sector on a year-to-date basis, with a cumulative return of 31.14%. This was its 25th consecutive week in the top spot and, on a longer-term basis, the 40th week there out of the past 43.

Building construction moved into the runner-up spot with a 22.52% cumulative return, after having been only third best over the six weeks before that, while the previous week's No. 2 sector, depository financial institutions (up 21.46%) fell into third place. Non-depository credit institutions showed a gain on the year of 18.56%, while insurance carriers were up by 15.53%.

Among the underachievers, coal remained in the red for a 13th straight week, finishing down 4.47%.

But it remained the only significantly sized sector to be showing a loss for the year.

While most other sectors posted double-digit percentage gains, food stores (up 7.26%), electronics manufacturers (up 8.61%), machinery and computer manufacturing (up 8.68%), oil and gas exploration and production companies (up 9.07%) and petroleum refining (up 9.59%) were lagging behind on a year-to-date basis, relatively speaking.

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