Advantage Data: Coal climb continues, as major sectors rally again

By Paul Deckelman

New York, Aug. 27 - The high-yield market recorded its 12th 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 very strong majority of the sectors notching advances - in sharp contrast with a considerably more mediocre showing the week before, which had represented a definitive weakening of the previously very robust trend.

That marked a return to the prior pattern of convincingly consolidating 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 advances and losses.

Besides the 12-week winning streak, on a longer-term basis there have been just four losses in the 34 completed weeks since the start of the year, versus 30 advances.

Of the 70 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 65 finished in the black last week, while just five sectors ended in the red.

That represented a substantial improvement from the relatively weak showing the week before, ended Aug. 17, when just 37 sectors posted gains, fully 31showed losses and one other sector had a flat, 0.00% reading, indicating neither a gain nor a loss on the week. In the interim, Advantage Data recalculated and expanded its roster of sectors, bringing the total number of sectors that it follows up to 70 this past week from 69 previously.

The strengthening was equally evident 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 only two in the red. That was in sharp contrast to the week before, when a mere 17 of those sectors showed gains, the number showing losses swelled to 12, and one sector - financial brokers and exchanges - was unchanged.

Among specific major sectors in the latest week, the volatile bonds of coal mining companies finished with the best showing for a fourth straight week - a far cry from their frequent position throughout this year among the worst performers.

Statistical indicators of general market performance were mixed on the week, but the total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, bounced back from a rare loss the week before, which had been its first loss after 10 straight weekly gains before that.

Index gets back on track

The Merrill Lynch index showed junk bonds with a one-week gain of 0.436% as of the close Friday, a reversal from the previous week's loss of 0.061%, which had been its first downturn following 10 consecutive weekly advances, dating back to early June. There have now been 26 weekly gains so far this year, against just eight weekly losses.

The index's year-to-date return had soared to 10.143% as of Friday from the previous week's 9.666%. Friday's finish marked a new peak level for 2012, and the highest seen in nearly 20 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 did better on the week after having been mostly lower the week before. The index showed an average price of 102.254, a yield-to-worst of 6.737% - a new low for the year - and a spread to worst over comparable Treasuries of 600 basis points, versus the previous week's price of 101.95, its yield of 6.849% and its 602 bps spread.

Coal keeps climbing

Back on a sector basis, Advantage Data meanwhile showed bonds of coal companies having the best showing among any of the significantly sized sectors for a fourth straight week, with a 1.32% gain. That followed the 0.60% advance in the week ended Aug. 17, which in turn had followed two additional weeks at the top of the pile. In the first of those, the week ended Aug. 3, the sector had gained 2.50% in accomplishing the unusual feat of having gone from worst to first; in the week before that, ended July 27, the miners had lost more than any other key sector, finishing down 1.62%.

The sector - which was already rebounding anyway - was helped additionally this past week by a favorable federal appeals court ruling against government efforts to impose new restrictions on the coal industry, which pushed both the bonds and the shares of such companies as. Peabody Energy Corp., Arch Coal Inc. and Alpha Natural Resources Inc. higher.

Coal remains easily the most volatile of all of the 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 before the most recent four weeks 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 before the July 27 week when coal had been the absolute biggest loser of all among the key sectors.

Among the other notable gainers in the past week were publishing (up 0.81%), paper manufacturing (up 0.68%), insurance carriers (up 0.65%) and electric and gas utilities (up 0.51%). It was the second straight week among the Top Five for the papermakers, which were up by 0.28% in the week ended Aug. 17, while the utilities had actually been among the worst finishers the week before with a 0.13% loss.

On the downside, only metals mining (down 0.10%) and metals processing (down 0.02%) showed actual losses; the Bottom Five was rounded out with sectors showing just relatively modest gains - food stores (up 0.17%), machinery and computer manufacturing (up 0.18%) and financial brokers and exchanges (up 0.21%).

It was the third consecutive week among the underachievers for the grocers, who had been there the week before with a 0.13% loss, and the group's 9th week in the last 10 in which it had been among the big losers. Metals processing, on the other hand, had been among the best finishers the week before - for a third straight time - with a 0.33% return.

Real estate still leads year

Thirty-four weeks into 2012, real estate remains the best-performing major sector on a year-to-date basis, with a cumulative return of 19.14% - its 12th consecutive week in the top spot and, on a longer-term basis, the 27th week there out of the past 30.

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 12th straight week since then, with a 17.24% gain on the year.

Not too far behind were depository financial institutions (up 15.48%), with non-depository financials (up 11.88%), investment and holding companies (up 11.87%), insurance carriers (up 11.81%), wholesale durable goods distributors (up 11.12%), automotive services (up 11.09%) and publishing (up 11.02%) also showing double-digit percentage strength.

Among the underachievers, coal - helped by its string of recent gains - got back in the black with a 1.79% yearly return, but remains the weakest of all of the major sectors. Food stores, hurt by a string of recent poor weekly performances, were returning 4.77%.

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