Advantage Data: Durable goods distributors, metals mining tops amid junk major-sector rally

By Paul Deckelman

New York, Sept. 24 - The high-yield market recorded its 16th straight week of gains last week, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

The latest data showed a majority of the sectors notching advances, as the market continued to extend the gains it has racked up since breaking out of a choppy performance pattern seen from mid-May through mid-June, when it had alternating weeks of advances and losses.

Besides the 16-week winning streak, on a longer-term basis, there have been just four losing weeks in the 38 completed weeks since the start of the year, versus 34 advances.

However, the latest week's count of positive-versus- negative sectors reflected a softening from recent very strong levels.

Of the 66 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 48 finished in the black last week, while 17 sectors were ended in the red, and one sector was unchanged on the week, showing neither a gain nor a loss.

That was a deterioration from the pattern seen the week before, ended Sept. 14, when 64 out of the 66 sectors ended on the upside, while just two sectors were on the downside.

That somewhat moderating trend was reflected in 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; of that group, 26 ended in the black, three were in the red and one was unchanged - versus the previous week, when all 30 ended better on the week and none showed any loss.

Among specific major sectors in the latest week, bonds of wholesale durable goods distributors and metals mining companies had the best showings of any of the significantly sized sectors, while coal mining was once more back in its usual position at the bottom of the pile.

Statistical indicators of general market performance were mixed on the week, although the total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, showed a fifth straight week on the upside.

Index extends gains

The Merrill Lynch index showed junk bonds with a one-week gain of 0.034% as of the close Friday, versus the previous week's 1.211% jump - the biggest increase so far this year. There have now been 30 weekly gains so far this year, against just eight weekly losses.

The index's year-to-date return had strengthened to 12.65% as of Friday from the previous week's 12.612%, although Friday's finish was a little off from this year's peak level so far, 12.814%, set this past Wednesday. Those recent levels have been the highest seen in nearly 21 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.

During the week, the index finally saw downturns on Thursday and Friday, snapping its 24-session winning streak that dated all the way back to Aug. 17.

While the year-to-date return was still up week-over-week, other components of the Merrill Lynch index were under pressure. The index showed an average price of 104.007 on Friday, down from 104.127 the week before, while its yield to worst stood at 6.257%, versus the week-earlier yield of 6.202%. Its spread to worst over comparable Treasury issues was 554 basis points, having widened from 544 bps the week before, the tightest level seen so far this year.

Durable goods do well

Back on a sector basis, Advantage Data meanwhile showed bonds of wholesale durable goods distributing companies having the best return for the week of any of the significantly sized sectors. They were up by 0.74% - a sharp turnaround from the previous week, when the grouping had gained 0.52%, but was still found among the Bottom Five worst large-sized performers, with most other sectors doing much better than that during that very strong week.

Among other notable gainers in the past week were metals mining (up 0.62%), automotive services (up 0.54%), building construction (up 0.51%) and transportation equipment manufacturing (up 0.43%).

It was the third straight week in the Top Five for metals mining, which had also been there the week before with a 1.69% finish. However, transportation equipment had been among the underachievers the previous week, posting "only" a 0.67% return.

Coal gets cold

On the downside, the coal-mining sector tumbled by 2.02% last week, the worst of any significantly sized sector. It was essentially a mirror image of the result seen in the Sept. 14 week, when coal had been the best performer in the index, jumping 2.06%. And proving that it is easily the most volatile of any of the market sectors, coal had been the single worst significantly sized performer in the two weeks immediately before that.

In fact, going all the way back to mid-May, there has been a virtually unbroken stretch of weeks in which coal has been either among the top finishers, alternating with weeks in which it has been among the worst performers - and in a number of those weeks, it has been either the single best or the single worst performer.

Apart from coal, no other key sectors had anything approaching a major loss. Lodging was down 0.02% on the week and health care eased by 0.01%. Machinery and computer equipment was unchanged with a flat 0.00% reading, neither a loss nor a gain. Rounding out the latest week's Bottom Five list, food stores were up by a meager 0.01%.

It was the grocers' third straight week earning that dubious honor; the grouping had posted relatively weak returns of 0.47% in the week ended Sept. 14 and 0.21% the week before that. Lodging, on the other hand, had been among the best finishers the three previous weeks.

Real estate leads for year

Thirty-eight weeks into 2012, real estate remains the best-performing major sector on a year-to-date basis, with a cumulative return of an even 23.00% - its 16th consecutive week in the top spot and on a longer-term basis, the 31st week there out of the past 34.

Automotive services moved into the runner-up spot with a 17.52% cumulative return, supplanting building construction, which had held down the Number Two spot over 14 weeks out of the previous 15 but which fell into third place this past week with a 16.61% return for the year.

Also showing some notable year-to-date strength were non-depository financial institutions (up 15.37%) and insurance carriers (up 15.26%).

Among the underachievers, coal remained in the red for a fourth straight week (down 3.45%), but it was the only significantly sized sector to be showing a loss on the year so far. With most other sectors already posting double-digit percentage gains, metals mining (up 7.95%), food stores (up 8.77%), oil and gas exploration and non-computer electronics manufacturing (up 9.97%) were lagging behind on a year-to-date basis.

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