Advantage Data: Coal tops as major junk sectors' rebound continues

By Paul Deckelman

New York, July 15 - The high-yield market saw a gain in the period ended Friday, its second consecutive increase, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Junk thus continued a rebound that started during the holiday-shortened week before, which ended July 5, when it snapped a seven-week nosedive that had begun during the week ended May 17. That long skid, in turn, had abruptly ended a winning streak of 13 consecutive weeks before that in which junk had shown gains, dating back to the week ended Feb. 15, when it had broken out of a two-week slump.

The advance in the latest week marked the 19th gain that the junk market has seen so far this year, against nine weekly losses for 2013. Aside from the recent cluster of consecutive weekly losses, the other downturns had occurred back-to-back in the weeks ended Feb. 1 and Feb. 8. On a longer-term basis, last week marked the 26th gain in the last 38 weeks, versus 12 losses during that time. Besides the 13-week winning streak earlier in the year, a 10-week stretch of consecutive weekly gains between last November and the week ended Jan. 25 also helped to account for much of those gains over that longer period.

In the latest week, 62 of the broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black, while only two ended in the red. That extended and strengthened the positive showing seen the week before, when 43 of the sectors showed gains and 22 posted losses. In the interim, Advantage Data recalculated and slightly trimmed the size of the overall sector roster.

The strengthening market rebound after the seven straight weeks on the downside was also reflected in the behavior 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 outstanding. All 30 of those larger sectors ended in the black this past week, with none finishing in the red. As in the case of the overall sector count, that represented a solid improvement from the modestly positive breakdown seen the previous week, when 19 of those key sectors had shown gains and 11 had posted losses.

Among specific major sectors in the latest week, the recently battered bonds of coal-mining companies staged a massive comeback, while petroleum refining did the worst, relatively speaking.

Statistical indicators of general market performance turned positive on the week, including the total year-to-date return as measured by the widely followed Merrill Lynch High Yield Master II index, which showed its first gain after eight straight weekly losses.

Index retreat comes to an end

The Merrill Lynch index showed junk bonds having gained 1.267% for the week as of the close Friday, versus their 0.006% easing the week before. That not only snapped the eight-week-long skid that went back to the week ended May 17, but was the largest weekly gain seen so far this year, eclipsing the 1.002% rise in the week ended May 3, and it was one of the biggest weekly improvements ever. The index has now seen 17 gains so far in 2013 against 11 losses. It had finished 2012 with 40 weekly gains versus 12 weekly losses.

As of Friday, the index's year-to-date return stood at 2.74%, up from 1.455% at the end of the previous week. It marked the first time since mid-June that the index had ended the week above the psychologically significant 2% mark. The return was still well down from its peak level for the year so far of 5.835%, recorded on May 9, though up solidly from its 2013 low point of 0.384%, set on June 25. The index had finished 2012 with a cumulative return of 15.583%, just a little below its peak for the year of 15.589%.

The index showed an average price of 102.485 on Friday, up from 101.323 a week earlier.

Its yield-to-worst stood at 6.242%, down from 6.638% a week earlier. While having come in from its high point for the year of 6.853%, set on June 25, it remained still well above its low yield for the year of 4.986% on May 9 - which was the lowest all-time yield as well.

Aided by a continued, sharp sell-off in U.S. government debt, accompanied by a steep rise in yields on that federal paper, the junk index's spread to worst over comparable Treasury issues tightened to 488 basis points from 509 bps the week before, continuing to narrow from its 2013 wide point of the year of 536 bps, also set June 25. Its tightest level for the year so far has been 427 bps over Treasuries, also set on May 9.

Coal comes back

On a sector basis, Advantage Data showed the bonds of coal-mining concerns having done the best among the significantly sized junk market groupings, jumping by 2.33%.

Coal thus accomplished the relatively unusual feat of going from worst to first, as it had been the single worst finisher among all of the key sectors in the week ended July 5, when it had been down by 0.79%. That had been its fifth straight week in which it had been among the Bottom Five worst-performing major sectors and its fourth consecutive week at the absolute bottom of that pile.

Other sectors showing strength on the week included chemical manufacturing (up 1.59%), health care (up 1.43%) and the oil and natural gas exploration and production sector and the telecommunications sector, both of which were up by 1.22%.

With all of the significantly sized sectors having finished in the black this week, as noted, there was no downside as such - only a group of sectors whose returns on the week were considerably smaller than those of the other major sectors.

These included petroleum refining (up 0.34%), publishing and printing (up 0.61%), metals mining (up 0.62%), insurance carriers (up 0.66%) and holding companies and other investment offices (up 0.70%).

Food stores firmest for year

Twenty eight weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 26th straight week, posting a cumulative return of 13.97%. It remained the first and so far only major sector to hit double digits on a percentage basis this year.

The grocers were followed for a second consecutive week by publishing and printing (up 6.10% on the year) and then by non-computer electronics manufacturing (up 5.29%), which held third-best for a second straight week. Then came health care (up 5.12%), which had not been among the year's leaders the week before, and insurance carriers (up 4.87%), down one position from fourth-best the week before.

Among the year-to-date underachievers, coal mining's cumulative loss built up over the past few weeks could not be erased even by its stellar upside performance for the week, and it remained in the red for a fourth straight week (down 3.27%) and was the worst of any significantly sized sector for a fifth straight week. However, its loss for the year did improve solidly from the previous week's 5.44% deficit.

Electric and gas utilities dropped to second-worst (up 1.09% for the year), after having been only third-worst for the previous four weeks. It switched places with metals mining (up 1.40%), which had been second-worst for the previous three weeks, including two weeks actually in the red along with the coal companies. Telecommunications (up 2.05%) was the fourth-worst finisher for a second straight week, followed by primary metals processing (up 2.38%), which had not been among the year's worst key-sector performers the previous week.

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