Advantage Data: Metals miners pace continued junk major-sectors comeback; coal stays strong

By Paul Deckelman

New York, Dec. 3 - The high-yield market was up for a second straight week ending Friday as it continued to bounce back from consecutive losses in the two weeks immediately before that, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Last week was the third week on the upside in the last six, and as had been the case the week before, an overwhelming majority of the sectors posted gains.

The recent choppiness in the market - a "down" week or two, followed by an "up" week or so, alternating back and forth - has followed 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 sparkling 16-week winning streak that stretched all the way back to early June.

On a longer-term basis, last week was the 40th weekly gain in the 48 completed weeks since the start of the year, versus eight losses.

Of the 66 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 62 finished in the black last week, while only four sectors finished in the red.

That extended the pattern of strength seen the week before, ended Nov. 23, when 61 of those sectors finished on the upside, versus just four showing negative results. (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 continuing 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; all 30 of those sectors ended in the black last week, with none in the red. The week before, 28 of those bigger sectors had ended higher on the week and just two finished with losses.

Among specific major sectors in the latest week, bonds of metals mining companies showed the best gains, followed by those of coal mining companies - the volatile latter group turning in its second strong performance in a row, in contrast to the big losses seen over the previous two weeks. There was no downside, as such, but bonds of food store operators had the smallest major-sector gains.

Statistical indicators of general market performance showed gains for a second straight week, including the total year-to-date return as measured by the widely followed Merrill Lynch High Yield Master II Index, now at a new high for the year.

Index keeps rising

The Merrill index showed junk bonds with a one-week gain of 0.836% as of the close Friday, following the previous week's 0.657% advance, which broke a string of two weekly losses before that. There have now been 36 weekly gains so far this year, against 12 weekly losses.

The index's year-to-date return had risen to 13.779%, versus the previous week's 12.836%. Friday's level marked a new peak for the year, eclipsing the previous high-water mark of 13.602%, set just the session before. Friday marked the 10th consecutive session of daily gains.

Among its other components, the index showed an average price of 103.292 on Friday, up from 102.665 the week before, while its yield to worst stood at 6.466%, versus the week-earlier yield of 6.552%. Its spread to worst over comparable Treasury issues tightened to 576 basis points from 580 bps the week before.

Metals on the move

Back on a sector basis, Advantage Data meanwhile showed the bonds of metals mining companies having posted a 1.84% return last week, the biggest of any of the significantly sized sectors.

Other notable gainers on the week included coal mining (up 1.47%), real estate (up 1.35%), which was closely followed by financial brokers and exchanges (up 1.34%), and electronics manufacturing (up 1.06%).

It was the second straight week among the Top Five for the brokers and exchanges group, which had been there the week before with a 0.78% gain, and for coal, which had a 1.62% return the week before - the biggest of any of the significantly sized sectors that week.

Proving that coal is easily the most volatile of any of the key market sectors, the two strong weeks followed two consecutive weeks in which it was the worst of all of the significantly sized sectors, plunging by 2.35% in the week ended Nov. 16 and 2.01% in the week ended Nov. 9.Those two weeks, 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 during which they had led all of the large sectors.

In fact, going all the way back to mid-May, there has been a virtually unbroken string of over 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.

With all 30 of the key sectors posting gains this past week, there was no downside as such, although there were some sectors which turned in considerably more modest returns than the rest. These included food stores (up 0.18%), insurance carriers (up 0.33%), wholesale durable goods distributors (up 0.37%), non-depository credit institutions (up 0.40%) and building construction (up 0.43%).

It was the second consecutive week among the Bottom Five for the food stores, which had been there the previous week with a meager 0.17% return, for the insurers (down 0.17% the week before) and the non-depository institutions - the worst single finisher the week before, when the group fell by 0.19%.

The insurers continued to reel in the face of ever-mounting claims related to Hurricane Sandy, which caused widespread serious property damage, including thousands of ruined homes and cars, in the heavily populated northeastern part of the United States.

The grocers were hurt by a slide in SuperValu Inc. bonds on news reports that the troubled supermarket operator's talks with potential buyer Cerberus Capital Management LP had run into roadblocks.

Real estate leads for year

Forty-eight weeks into 2012, real estate remains the best-performing major sector on a year-to-date basis, with a cumulative return of 33.54% - its 26th consecutive week in the top spot and on a longer-term basis, the 41st week there out of the past 44.

Depository financial institutions moved into the runner-up spot with a 20.87% cumulative return, the sector's second time there in the past three weeks. That dropped building construction, which returned 18.49%, back to third place, where it has now been for seven weeks out of the past eight, interrupted only by its short-lived move into second place in the Nov. 23 week. Insurance carriers were not far behind with a gain of 18.46%, while non-depository financials were up by 17.79% so far on the year.

Among the underachievers, coal remained in the red for a 14th straight week, finishing down 5.45%. But it was still the only significantly sized sector to be showing a loss for the year.

With most other sectors posting double-digit percentage gains, food stores (up 6.26%) and electronics manufacturers (up 9.28%) were lagging behind on a year-to-date basis, relatively speaking.

Machinery and computer manufacturers, oil and gas exploration and production companies and petroleum refiners finally managed to crack the double-digit barrier, now returning slightly above 10% on the year, as were precision instrument makers and transportation equipment manufacturers.

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