Advantage Data: Volatile coal mining leads as major junk-sector rise continues

By Paul Deckelman

New York, July 9 - The high-yield market scored its fifth successive weekly gain last week, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

That data showed a majority of the sectors showing gains. High yield thus continued to move up after breaking out of a recent choppy performance pattern which had seen alternating weeks of gains and losses over a period of more than a month, starting around mid-May.

With the latest week's rise, gains have now been seen in five weeks out of the last six, in six weeks out of the last eight and in eight weeks out of the last 10. On a longer-term basis, there have been just four losses in the 27 completed weeks since the start of the year, versus 23 advances.

Of the 73 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 65 finished in the black last week, just five ended in the red and three other sectors did not generate sufficient activity to produce any kind of a number.

That represented a continuation of the positive trend seen the previous week, ended June 29, which also saw 65 sectors finishing higher, only four closing lower and four additional sectors showing no activity.

Mirroring the overwhelmingly positive pattern seen in 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 this week, with only one in the red, the second consecutive week for that exact 29-1 breakdown.

Among specific major sectors in the latest week, bonds of coal-mining companies turned in the strongest performance for the second time in three weeks - after the volatile sector, the poorest-performing major grouping over the last few months, had been the single worst finisher in the June 29 week.

Other sectors showing some strength included metals mining and several financial sectors, led by investment and holding offices.

One the downside, just one significantly sized sector actually showed a loss -financial brokers and exchanges. Other sectors showed relatively modest returns on the week versus their peers, including transportation equipment manufacturing, food stores and automotive services providers, chiefly vehicle-rental companies.

Statistical indicators of general market performance were mostly higher on the week, including the total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, which posted its fifth straight weekly gain and hit a new high level for the year.

Index extends gains

The Merrill Lynch index showed junk bonds with a one-week gain of 0.551% as of the close Friday, on top of the previous week's 0.586% advance. There have been seven weekly losses so far this year, against 20 gains.

The latest week's advance lifted the index's year-to-date return to 7.643% on Friday, up from 7.053% a week earlier. It was the highest reading for the year to-date, and was, in fact, the index's highest reading in 18 months - since the 15.19% year-to-date return notched back on Dec. 31, 2010. The index had finished 2011 with a 4.383% return, and its highest reading last year was 6.362%, recorded on July 26, 2011.

Other components of the Merrill Lynch index also showed improvement on the week. As of Friday, the index showed an average price of 100.877 and a yield to worst of 7.265%, versus the previous week's price of 100.63 and a yield of 7.289%.

However, owing to continued lower Treasury yields, its spread to worst widened slightly, to Friday's 653 basis points over comparable Treasuries from the previous week's 649 bps. The 10-year Treasury yield fell to 1.55% on Friday from 1.64% a week earlier.

Volatile coal comes back

Back on a sector basis, Advantage Data meanwhile showed bonds of coal mining companies as the top finisher among the significantly sized sectors, with a 1.47% gain on the week.

Coal thus accomplished the unusual feat of going from worst to first; in the June 29 week, coal had lost 0.94%, the only major-sized sector finishing in the red that week. Going back a little further, coal has recently been the most volatile of the large-sized sectors; the grouping had again been the best finisher in the week ended June 22, when it jumped by 2.44% - but that hefty gain had followed five straight weeks in which it had been among the Bottom Five worst-performing key sectors, twice being the absolute worst finisher.

Apart from coal, metals mining (up 1.16%), investment and holding offices (up 0.79%), real estate (up 0.76%) and depository financial institutions (up 0.75%) also showed strength in the latest week.

On the downside, just one significantly sized sector - financial brokers and exchanges - was in the red, showing a 0.12% loss. Several other sectors showed just relatively modest gains versus their peers, including transportation equipment manufacturers (up 0.31%), automotive services providers and food store operators (each up 0.32%) and non-depository financial institutions (up 0.36%).

It was the second straight week among the underachievers for the transportation equipment sector, which had also been there the previous week with an identical 0.31% gain, and the third straight week there for food stores, which had just modest gains of 0.22% the week before and 0.17% the week before that, ended June 22.

However, the automotive services sector tumbled after actually having been the best-performing major sector in the June 29 week, when it returned 1.07%.

Real estate in lead for year

Twenty-seven weeks into 2012, real estate remains the best-performing major sector on a year-to-date basis, with a 14.75% cumulative return, its fifth consecutive week in the top spot and on a longer-term basis, the 20th week out of the past 23.

Building construction - which had temporarily displaced real estate as the year-to-date leader in the week ended June 1 - remained in its more usual second-place spot for a fifth straight week, with a 12.92% gain on the year.

Not too far back were depository financial institutions (up 12.14%) and automotive services (up 10.18%).

On the downside, coal - despite its index-leading weekly showing - remained in negative territory with a 2.16% cumulative loss, but was still the only major-sized sector there for the year so far.

Others posting just relatively modest gains on a cumulative basis included oil and gas exploration and production (up 4.33%) and petroleum refining (up 4.79%).

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