Advantage Data: Publishing pops as junk major-sector rally continues; coal takes its lumps

By Paul Deckelman

New York, July 30 - The high-yield market scored its eighth successive weekly gain last week, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

That data once again showed a majority of the sectors notching gains. Junk thus solidified the gains it has racked up since breaking out of a choppy performance pattern of alternating weeks of gains and losses from mid-May through mid-June.

Besides the streak, the latest weekly rise also means that gains have now been seen in nine weeks out of the last 10. On a longer-term basis, there have been just four losses in the 30 completed weeks since the start of the year, versus 26 advances.

Of the 73 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 53 finished in the black last week, 16 ended in the red and four additional sectors did not generate sufficient activity to produce any kind of a number.

That represented something of a deterioration from the overwhelmingly positive trend seen the previous week, ended July 20 - the latest in a string of such very strong gains - when 61 sectors finished higher, just five closed lower and two other sectors had flat 0.00% readings, showing neither a gain nor a loss on the week. In the interim, Advantage Data restored several of the less-active sectors, raising the total number on its roster to 73 from 68 previously.

Mirroring the somewhat less strongly positive pattern seen in the overall high-yield universe, 19 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 11 sectors in the red. The week before, 27 of those 30 sectors had finished on the upside for a second consecutive week, with just one sector in the red and two others unchanged on the week.

Among specific major sectors in the latest week, bonds of publishing companies and electric and gas utility companies turned in the strongest performances this past week, while the coal mining sector was in a familiar position as the single worst finisher.

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 eighth straight weekly gain and ended the week at a new high level for the year.

Index extends gains

The Merrill Lynch index showed junk bonds with a one-week gain of 0.107% as of the close Friday, on top of the previous week's 0.554% advance. There have been 23 weekly gains so far this year, against just seven weekly losses.

The latest week's rise lifted the index's year-to-date return to 8.574% on Friday, a new peak level for 2012 so far, up from 8.457%, a week earlier, the previous high point for the year. The recent index levels are the highest seen in nearly 19 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.

While the year-to-date return rose, other components of the Merrill Lynch index were mixed this past week, with some actually showing some slight erosion from the previous week's closing level, as the index sought to bounce back from several losing sessions early in the week.

As of Friday, the index showed an average price of 101.291 and a yield to worst of 7.076% versus the previous week's price of 101.356 and its yield of 7.071%. However its spread-to-worst stood at of 637 basis points over comparable Treasuries, having tightened from 642 bps a week earlier despite the slight rise in the average junk bond yield in the interim, as Treasury yields rose more; the 10-year government notes were yielding 1.54% late Friday, versus 1.46% a week earlier.

Publishing props up index

Back on a sector basis, Advantage Data meanwhile showed bonds of publishing companies as the top finishers among the significantly sized sectors, with a 0.64% gain on the week, followed by electric and gas services, which was up 0.44%, largely due to the jump in GenOn Corp. bonds and the more modest, but still notable gain in NRG Energy Inc.'s paper, on the news that NRG will acquire rival power generating company GenOn in a $1.7 billion all-stock transaction that is expected to significantly cut the combined entity's debt load and leverage ratios over time.

Other gainers of note last week included the food manufacturing and the machinery and computer manufacturing sectors (both up 0.25%) and building construction (up 0.24%). It was the third consecutive week among the elite finishers for the building sector, which also made it the week before with a 0.75% gain.

On the downside, bonds of coal mining companies had the worst showing among the significantly sized sectors, losing 1.62%. Coal remains the most volatile of all of those major sectors, falling deep into the red this week after having been among the Top Five finishers the week before, when it was up 0.92%; that, in turn had followed a Bottom Five-worthy 1.60% plunge in the week ended July 13.

In fact, going all the way back to mid-May, there has been a long stretch of weeks in which the miners have been either among the top finishers - including at twice when the group was the strongest sector of all - alternating with weeks in which they have been among the worst performers, including three previous times when coal had been the absolute biggest loser of all among the key sectors.

Other notable underachievers this past week included metals mining (down 0.96%), lodging (down 0.51%), real estate (down 0.48%) and food stores (down 0.36%).

It was the second consecutive week in the Bottom Five for lodging, which was there the week before with a flat 0.00% reading, signifying neither a gain nor a loss on the week, while metals mining was there for a third consecutive time and food stores for a sixth straight week. In fact, the grocers had actually been the worst-performing of any major sector in each of the previous two weeks, with 0.64% of red ink in the July 20 week and a 2.01% plunge the week ended July 13.

On the other hand, real estate tumbled this past week after having been the single-best-performing major sector the week before, when it rose by 1.14%.

Real estate leads for year

Thirty weeks into 2012, though, real estate remains the best-performing major sector on a year-to-date basis, with a 17.20% cumulative return - its eighth consecutive week in the top spot and on a longer-term basis, the 23rd week there out of the past 26.

Building construction - which had temporarily displaced real estate as the year-to-date leader back in the week ended June 1 - remained in its more usual second-place spot for an eighth straight week since then, with a 15.27% gain on the year.

Not too far behind was depository financial institutions (up 13.80%), with insurance carriers (up 10.39%), automotive services (up 10.36%), non-depository financials (up 10.26%) and the week's best gainer, publishing (up 10.00%) also showing double-digit percentage strength.

On the downside, coal remained in negative territory with a 9.16% cumulative loss, but was still the only major-sized sector there for the year so far.

Also posting just relatively modest gains on a cumulative basis was food stores, up a meager 3.38% - well below all of the other sectors.

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