Advantage Data: Financial areas lead the way on continued junk market major-sector rally

By Paul Deckelman

New York, Jan. 30 - The high-yield market closed out the final full week in January last week the same way it has finished all of the weeks since the start of the new year - on the upside, notching its fourth straight advance for 2012 so far and its ninth consecutive weekly gain overall, going back to early December.

Once again, a large majority of industry groupings showed gains last week, according to sector-tabulated bond-performance statistics supplied to Prospect News by Advantage Data Inc.

Of the 73 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 68 finished in the black last week, only three sectors were in the red, and two others did not show enough statistically meaningful activity to produce any kind of results.

That continued the bullish trend seen the week before, ended Jan. 20, when 65 sectors posted gains, just five had negative results and three others produced no results.

All 30 of the most significantly sized sectors - as measured by the number of bond issuers, the collective number of issues tracked and their total face amount - ended in the black in the latest week, with none finishing in the red. That clean sweep continued and extended the trend from the prior week, when 27 of those sectors had shown positive results, with just three having a negative result.

Among specific major sectors in the latest week, bonds of firms in the financial sphere topped the list - non-depository and depository institutions, brokers and exchanges and real estate.

There was no downside as such, with all main sectors finishing in the black this past week, but a few had only relatively modest gains in an otherwise generally strongly positive week, notably publishing, metals processors and miscellaneous retailing.

Looking at statistical indicators of overall market performance, junk's total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, ended higher on Friday for a sixth straight week.

Key measure piles up gains

Junk bonds, as measured by the Merrill Lynch index, had a one-week gain of 1.194% to notch that sixth consecutive weekly advance. The week before had seen a 0.578% one-week return.

The latest gain lifted its year-to-date return to 2.876% at the close Friday versus 1.662% the prior week. Friday's finish was also the peak level for 2012 so far, eclipsing the 2.788% high-water mark set just the session before.

With the latest week's advance, the index has now shown positive finishes in eight of the last 10 weeks, including in eight weeks out of the last nine, as the junk market continues to rebuild the strong momentum which high yield had generated during the first half of last year, but which had then been only sporadically present for much of the second half.

Other components of the Merrill Lynch index also firmed on the week. As of Friday, the index showed an average price of 100.354 - the first time that measure has nudged above the psychologically significant 100 figure to end a week since early last August.

It also saw a yield to worst of 7.529% and a spread to worst of 670.184 basis points over comparable Treasuries, versus a price of 99.295, a yield of 7.801% and a spread of 683.697 bps at the close of the previous week, which was the first time the spread had fallen below 7% since the end of October.

Financials take flight

Back on a sector basis, Advantage Data meanwhile showed the various financial sectors turning in the strongest performances among the significantly sized sectors, with four out of the top five originating there.

Bonds of non-depository financial institutions had the best performance among the major sectors last week, when they rose by 1.93%. It was a solid turnaround for the group, which in the week ended Jan. 20 had actually been among the weakest performers with a return of just 0.16%.

Other top performers this past week were depository financial institutions (up 1.71%), financial brokers and exchanges (up 1.42%), real estate (up 1.40%) and the lone non-financial sector among the elite finishers, chemical manufacturing (up 1.38%).

It was the second consecutive week on the leaderboard for the brokers and exchanges sector, and the fourth straight week there for real estate, which in fact was the best single performer among the significantly sized sectors the week before with a 2.04% return.

There was no real downside, per se, with all of the key sectors finishing in the black. However, with a majority of those sectors posting gains on the week of at least 1%, publishing was the weakest in the group, at just 0.46%. It was the second straight week down at the bottom for the publishers, who were also there the previous week with a 0.88% loss on the week - the only significant red ink for any large sector that week.

Other relative underachievers in the most recent week included metals processors (up 0.49%), miscellaneous retailing (up 0.60%) and the coal mining and food stores sectors, which were each up 0.62%.

Construction tops on year

On a year-to-date basis four weeks into 2012, building construction remains the top performer so far with a 6.24% return. Also showing strength have been real estate, up 5.61% on the strength of its fourth straight finish among the Top Five; depository financials (up 4.28%), brokers and exchanges (up 4.02%) and chemical manufacturers (up 3.73%).

Publishing, the week's worst major-sector performer for a second consecutive time, managed to pull itself out of the red, where it was the previous week, but still had just a 0.52% year-to-date return. It was the only major sector with a return of less than 1%. Electric and gas utilities (up 1.47%) food stores (up 1.67%), oil and gas exploration and production (up 1.74%), miscellaneous retailers (up 1.78%), precision instrument manufacturers (up 1.83%) and insurance carriers (up 1.92%) all failed to return at least 2% or more on the year to date.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.