Advantage Data: Coal, metals tops as junk major-sector rebound continues

By Paul Deckelman

New York, Oct. 22 - The high-yield market recorded its third consecutive 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 strong majority of the sectors notching advances, as the market continued to rebound from the rare downturn seen during the week ended Sept. 28 - its first such losing week after 16 consecutive weeks on the upside, dating back to early June.

On a longer-term basis, it was the 19th advance in the past 20 weeks. There have been just five losing weeks in the 42 completed weeks since the start of the year, versus 36 advances.

The latest week's count of positive-versus-negative sectors reflected strong pickup from the previous week's somewhat fair-to-middling levels.

Of the 65 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 62 finished in the black last week, while only three sectors ended in the red.

That was a definite strengthening from the results of the week before, ended Oct. 12, when 50 sectors ended on the upside and 16 were on the downside (in the interim, Advantage Data recalculated and contracted its roster of sectors, bringing the total number of sectors that it follows down to 65 this past week from 66 previously).

That much better trend seen in the overall market was also 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; all 30 ended in the black and none were in the red - versus the previous week, when 22 of the sectors ended better on the week and eight showed a loss.

Among specific major sectors in the latest week, bonds of coal mining companies and metals miners had the best showings of any of the significantly sized sectors, while electronics manufacturing continued its recent struggles.

Statistical indicators of general market performance were better on the week after having been mixed the week before. The total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, showed a third straight week on the upside.

Index extends gains

The Merrill Lynch index showed junk bonds with a one-week gain of 0.604% as of the close Friday, versus the previous week's 0.030% advance. There have now been 33 weekly gains so far this year, against nine weekly losses.

The index's year-to-date return had strengthened to 13.398% as of Friday from the previous week's 12.717%, although Friday's finish remained a little off from this year's peak level so far, 13.455%, set on Thursday. Those 13%-plus levels have been the highest seen in over 22 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.

Among its other components, the index showed an average price of 104.059 on Friday, up from 103.574 the week before, while its yield to worst stood at 6.214%, versus the week-earlier yield of 6.419%. Its spread to worst over comparable Treasury issues tightened to 544 basis points from 570 bps the week before.

Coal continues to cook

Back on a sector basis, Advantage Data meanwhile showed bonds of coal mining companies having the best return for the week of any of the significantly sized sectors, as they rose by 2.01%.

It was the third straight week the miners were among the best performers, and the second consecutive week they were right at the top of the pile, having led all major sectors the week before with a 0.86% gain.

And proving that it is easily the most volatile of any of the key market sectors, coal had been the single worst-performing significantly sized grouping 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 many months 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 of all.

Away from coal, other notable gainers in the past week included metals mining (up 1.35%), insurance carriers (up 1.22%), food stores (up 0.93%) and publishing (up 0.73%).

It was the third straight week among the leaders for metals mining, which had a 0.41% gain the week before, and the second straight week there for the insurers, which had risen by 0.74% in the prior week.

However, it represented a smart firming among the food stores, largely due to market speculation that SuperValu Inc. was making progress in its previously announced efforts to find an investor or a buyer for either the whole company or for one or more of its component parts. The week before, the grocers' group had been among the worst finishers, when they were down by 0.07%.

With all of the key sectors having finished in the black this past week, there was no downside, as such - although some sectors were considerably weaker than the rest. Chief among them was electronics manufacturing, up a paltry 0.02%. It was the sector's fourth straight week among the worst underachievers, and second straight week of being down at the bottom; in the week ended Oct. 12, it had lost 0.29%.

Others posting only relatively small gains in the most recent week were non-depository financial institutions (up 0.13%), precision instrument manufacturers (up 0.21%), health care providers (up 0.22%) and amusement and recreation companies (up 0.29%).

It was the second week among the weaker performers for health care, which also had that dubious honor the week before with a 0.12% retreat. On the other hand, the non-depository financials had been among the previous week's best finishers, with a 0.23% gain.

Real estate leads for year

Forty-two weeks into 2012, real estate remains the best-performing major sector on a year-to-date basis, with a cumulative return of 26.99% - its 20th consecutive week in the top spot and on a longer-term basis, the 35th week there out of the past 38.

Insurance held the runner-up spot for a second consecutive week with a 24.30% cumulative return. The week before, it had supplanted building construction, which had held down the Number-Two spot for the two weeks before that and over the longer term, in 16 weeks out of the prior 18. The construction grouping held third place for a second consecutive week with a 19.17% return for the year.

Also showing some notable year-to-date strength were non-depository financial institutions (up 16.80%) and depository financials (up 16.51%).

Among the underachievers, coal remained in the red for an eighth straight week (down 4.25%), despite its strong showing on the week. But it remained 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, food stores (up 4.78%), machinery and computer manufacturing (up 8.71%), financial brokers and exchanges (up 9.11%) and electronics manufacturing (up 9.17%) were - relatively speaking, anyway - lagging behind on a year-to-date basis.

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