Advantage Data: Metals, coal mining perform the worst as junk major sectors tumble

By Paul Deckelman

New York, May 21 - After four consecutive weeks on the upside, the high-yield market slammed on the brakes and fell sharply last week, according to sector-tabulated bond-performance statistics supplied to Prospect News Monday by Advantage Data Inc.

The retreat snapped a four-week winning streak that had dated back to the week ended April 20, which followed a loss the previous week - a downturn which had also followed four straight weeks of gains.

Even with the loss in the latest week, gains have still now been seen in four weeks out of the last five, and in eight weeks out of the last 10. On a longer-term basis, there have been just three losses in the 20 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, 65 finished in the red last week, only three sectors were in the black and four other sectors did not generate sufficient activity to produce any kind of a number.

That represented a strong reversal of the positive trend which had been seen the previous week, ended May 11, when 38 sectors finished higher, 30 were lower and four additional sectors showed no activity.

But even those results, while still positive, had signaled a considerable slowing of the upside momentum seen the week before that, ended May 4, when 61 sectors closed the week with gains, just two showed losses, one was unchanged, showing neither a gain nor a loss, and eight others recorded no activity.

Mirroring the pattern seen in the overall high-yield universe, all 30 of the 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 red this past week, with no sectors finishing in the black.

That represented a sharp reversal from the prior week, when 19 sectors had showed gains, while 11 sectors showed losses. But as with the larger market, even that previous week represented a deterioration from the pattern of strength seen over the three weeks before that, including the May 4 week, when 29 sectors had showed gains, just one sector ended unchanged with a flat 0.00% reading and none were in the red for a third consecutive week; in the two weeks before that, ended April 20 and 27, all 30 large sectors had showed gains against no losses.

Among specific major sectors in the latest week, bonds of metals mining companies and coal mining concerns had the worst showing among the major sectors.

All of the significantly sized sectors showed losses, although the bonds of paper manufacturing companies and non-depository financial institutions had the smallest deficits.

Statistical indicators of general market performance pointed lower for a second consecutive week, including the market's total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index. That had followed three previous weeks on the upside.

Index continues retreat

The Merrill Lynch index showed junk bonds with a one-week decline of 1.55% as of the close Friday, on top of the previous week's 0.019% loss. The latest week's loss was by far the largest of the five weekly losses seen so far this year.

The latest week's retreat left the index's year-to-date return at 5.108% on Friday, down from 6.762% a week earlier. That also put it well below the peak level for 2012 of 6.80%, established on May 7.

Other components of the Merrill Lynch index were also off on the week. As of Friday, the index showed an average price of 100.183, a yield to worst of 7.44% and a spread to worst of 659 basis points over comparable Treasuries, versus the previous week's price of 101.946, a yield of 6.993% and a spread of 614 bps.

Cave-in for miners

Back on a sector basis, Advantage Data meanwhile showed bonds of metals mining and coal mining companies having by far the worst performance among the significantly sized sectors, tumbling by 2.92% and 2.48%, respectively.

It was the second straight week among the worst performers for the metals miners, who in fact had also been at the bottom of the pile the week before with a 0.47% loss. Ironically, those two debacles followed the sector's sterling performance the week ended May 4, when it had led all of the major sectors with a 1.56% return.

Other underachievers in the latest week included real estate (down 1.78%), financial brokers and exchanges (down 1.65%) and telecommunications operators (down 1.52%).

It was the second straight week among the Bottom Five for telecom, which was also there with a 0.25% loss the previous week; however, real estate actually had the best showing of any major sector that week when it rose 0.39% to share the lead with the food stores sector, the second time in three weeks that real state had been on top.

With all major sectors showing losses this past week, there was no upside as such, although several sectors had considerably smaller losses than their peers.

These included paper manufacturing (down 0.21%), non-depository financial institutions (down 0.22%), machinery and computer manufacturing (down 0.31%), building construction (down 0.60%) and the food stores and insurance carriers (each down 0.61%).

It was the third straight week among the Top Five for the non-depository financials, which had risen 0.25% the week before, and the second week there for the grocers, who had shared the lead with real estate the week before with a 0.39% gain.

Construction tops for year

Twenty weeks into 2012, building construction - with one of the smaller losses on the week - grabbed the top spot in terms of year-to-date returns among the significantly sized sectors away from real estate, one of the week's larger losers. Construction showed a 10.79% return for 2012 so far, while real estate fell to 9.94%. Before the past week, real estate had been on top for six straight weeks and for 14 weeks out of the prior 15.

Not too far back were depository financial institutions (up 9.78%) and non-depository financials (up 9.65%).

On the downside, coal mining fell deep into the red on a year-to-date basis, its big weekly loss pushing it down to a 2012 deficit of 2.62%; however, it was the only major-sized sector in negative territory for the year so far.

Others posting just relatively modest gains on a cumulative basis included the week's biggest loser, metals mining (up 1.42% year to date), oil and gas exploration and production (up 3.14%) and petroleum refining (up 3.72%).

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