Advantage Data: Coal still hot as junk major-sector rally continues

By Paul Deckelman

New York, Aug. 13 - The high-yield bond market made it an even 10 straight weeks on the upside last week, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc. The latest data showed a solid majority of the sectors notching advances.

Junk thus continued to convincingly consolidate the gains it has racked up since breaking out of a choppy performance pattern seen from mid-May through mid-June of alternating weeks of gains and losses.

Besides the 10-week streak, on a longer-term basis, there have been just four losses in the 32 completed weeks since the start of the year, versus 28 advances.

Of the 73 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 61 finished in the black last week, nine sectors ended in the red and three other sectors did not generate sufficient activity to produce any kind of a number.

That represented a slight pullback from the ferociously strong showing the week before, ended Aug. 3, when 69 sectors posted gains and just one showed a loss. In the interim, Advantage Data recalculated and expanded its roster of sectors, adding back the less-active areas and bringing the total number of sectors that it follows up to 73 this past week from 70 previously.

But there was less slippage among 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. There were 28 such sectors ending in the black this week and just two in the red, versus the week before, when all 30 of those sectors had been on the upside, against no losses.

Among specific major sectors in the latest week, the volatile bonds of coal mining companies continued to play a key role, finishing with the best showing for a second straight week - a far cry from their frequent position among the worst performers.

Statistical indicators of general market performance were 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 10th straight weekly gain.

Index extends gains

The Merrill Lynch index showed junk bonds with a one-week gain of 0.259% as of the close Friday, on top of the previous week's robust 0.807% advance. There have been 25 weekly gains so far this year, against just seven weekly losses.

The index's year-to-date return rose to 9.733% on Friday - off a little from the 9.838% recorded on Wednesday, the peak level for the year, but still up from the 9.45% level the previous Friday.

The recent index levels are the highest seen in more than 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.

Other components of the Merrill Lynch index ended on a higher note across the board for a second straight week on Friday, with the index showing an average price of 102.170, a yield to worst of 6.849% and a spread over comparable Treasuries of 611 basis points, versus the previous week's price of 102.057, its yield of 6.896% and its 617 bps spread.

Coal comeback continues

Back on a sector basis, Advantage Data meanwhile showed bonds of coal companies making the best showing among any of the significantly sized sectors for a second straight week, with a 1.25% gain on top of the2.50% jump the week before, when the volatile sector had accomplished the unusual feat of going from worst to first; in the week before that, ended July 27, the miners had lost 1.62%, more than any other key sector.

Coal remains easily the most volatile of all of those major sectors; going all the way back to mid-May, there has been a long stretch of weeks in which coal has been either among the top finishers - including twice previously when the group was the strongest sector of all - alternating with weeks in which it has been among the worst performers, including three previous times when coal had been the absolute biggest loser of all among the key sectors.

Among the other notable gainers in the past week, metals mining rose by 1.04%, followed by real estate (up 0.97%), wholesale durable goods distributors (up 0.92%) and primary metals processors (up 0.72%). It was the second straight week among the Top Five best finishers for the latter grouping, which had been there the week before as well with a 1.04% gain.

On the downside, chemical manufacturing had the worst showing of any significantly sized sector, losing 0.12%, followed by lodging (down 0.04%).

Rounding out the Bottom Five list of the worst performers were food stores (up 0.05%), health care (up 0.08%) and precision instrument manufacturing (up 0.10%).

The grocers had actually been among the best performers in the Aug. 3 week, with a 1.03% gain, but have reverted back to their recent negative form; they've now been among the Bottom Five in seven weeks out of the last eight.

Real estate leads for year

Thirty-two weeks into 2012, real estate remains the best-performing major sector on a year-to-date basis, with a cumulative return of 17.36% - its 10th consecutive week in the top spot and on a longer-term basis, the 25th week there out of the past 28.

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, also for a 10th straight week since then, with a 15.85% gain on the year.

Not too far behind was depository financial institutions (up 13.87%), with wholesale durable goods distributors (up 12.22%), insurance carriers (up 11.35%), publishing (up 11.32%), investment and holding companies (up 11.29%), non-depository financials (up 11.25%) and automotive services (up 11.20%) also showing double-digit percentage strength.

On the downside, coal, despite its strong showing on the week, remained in negative territory with a 1.34% cumulative loss, but was still the only major-sized sector in the red for the year so far.

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