Advantage Data: Metals mining, auto services lead as junk key sectors continue rebound

By Paul Deckelman

New York, May 7 - The high-yield bond market turned a hat trick last week with its third consecutive weekly gain, continuing its rebound from a rare retreat last month, according to sector-tabulated bond-performance statistics supplied to Prospect News Monday by Advantage Data Inc.

Those advances followed a downturn in the week ended April 13, which had been the first such loss after four weeks before that on the upside.

Gains have now thus been seen in three weeks out of the last four, in seven weeks out of the last nine and, on a longer-term basis, in eight weeks out of the last 10. There have been just two losses in the 18 completed weeks since the start of the year.

Of the 72 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 61 finished in the black last week and just two sectors were in the red; one other sector finished unchanged, showing neither a gain nor a loss on the week, and eight other sectors did not generate sufficient activity to produce any kind of a number.

That mostly continued the trend seen the week before, ended April 27; during that week, 67 sectors finished higher, only one was lower and four other sectors showed no activity.

Mirroring the renewed strength seen among the overall high-yield universe, 29 out of 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 - ended in the black, with one sector - financial brokers and exchanges - finishing unchanged with a flat 0.00% reading and none in the red for a third consecutive week; in the two previous weeks, all 30 large sectors had showed gains.

Among specific major sectors in the latest week, bonds of metals mining, automotive services and real estate companies turned in the best performances.

For a third consecutive week, there was no downside as such, with all of the key sectors finishing in the black, or in the case of the brokers, unchanged. But several, such as metals processing and petroleum refining, recorded only relatively modest returns.

Statistical indicators of overall market performance pointed higher on the week; the market's total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, was up for a third straight week.

Index hits new highs

The Merrill Lynch index showed junk bonds with a one-week rise of 0.696% as of the close Friday, following the previous week's 0.672% advance.

The latest week's advance lifted the index's year-to-date return to 6.782% on Friday, up from 6.045% a week earlier. Friday was the ninth consecutive session on the upside. The cumulative return not only continued to establish new peak levels for 2012 each successive day of the week, but also blew right past 2011's high-water mark of 6.362%, which had been set last July 26.

Friday's close marked the index's highest level since the 15.190% reading at which the index had ended 2010 on Dec. 31 of that year.

Other components of the Merrill Lynch index were also better on the week. As of Friday, the index showed an average price of 102.121, a yield to worst of 6.947% and a spread to worst of 606 basis points over comparable Treasuries, versus the previous week's price of 101.56, a yield of 7.035% and a spread of 614 bps.

Metals miners have best move

Back on a sector basis, Advantage Data meanwhile showed bonds of metals mining companies having the best performance in the latest week among the significantly sized sectors, with a return of 1.56%.

Other major sectors showing strength last week included automotive services (up 1.14%), real estate (up 1.06%), non-depository financial institutions (up 0.98%) and building construction (up 0.93%).

It was the third straight week among the Top Five for automotive services - chiefly vehicle rental companies - which had also been there the week before with a 0.82% return, and the week before that, ended April 20, when the sector gained 0.54%. It was the second straight week among the elite finishers for real estate, which in fact had topped all key sectors the week before with a 1.18% return.

With all of the major sectors either ending on a positive note for a third consecutive week last week, or, like financial brokers and exchanges finishing with a flat unchanged reading, there was no downside as such - only some sectors which finished with smaller returns than their peers.

Metals processing was up 0.29%, followed by petroleum refining (up 0.31%), insurance carriers (up 0.32%), and miscellaneous retailing (up 0.33%). It was the second straight week among the underachievers for the retailers, who had also been there the week before with an identical 0.33% return. Metals processing had also been in the Bottom Five the previous week with a return of 0.21%.

Real estate retains lead

Eighteen weeks into 2012, real estate remained in the top spot in terms of year-to-date returns among the significantly sized sectors for a fifth consecutive week, registering a 13.26% gain for the year so far. The sector has now also been the top cumulative performer in 13 out of the last 14 weeks, a winning streak just briefly interrupted when depository financial institutions surged ahead in the week ended March 30, only to fall back the following week.

Building construction, with a 10.95% return, stayed in second place for a second consecutive week; it had also held that position for a few weeks earlier in the year. The depository financials moved up one notch, to third place, with a 10.31% return on the year.

Metals mining, helped by its index-leading performance on the week, was returning 9.30% year to date, followed by wholesale durable goods distributors at 8.98% and non-depository financials at 8.95%.

On the downside, coal mining was the only major-sized sector in the red for a third week out of the last four, down 0.35%.

Others posting only relatively modest gains on a cumulative basis included machinery and computer manufacturing (up 4.40%), petroleum refining (up 4.42%) and oil and gas exploration and production (up 4.71%). Electric and gas services was up 4.95% on the year.

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