Advantage Data: Junk better overall, but major-sector rally stalls; coal mining worst

By Paul Deckelman

New York, March 10 - The overall high-yield market posted gains for a fifth consecutive week, according to the latest sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc. - although in a rare divergence, a separate, more focused measure of just the largest industry sectors turned narrowly negative, after four straight weekly gains.

During the week ended Friday, the overall junk market continued to shake off the rare loss seen some weeks earlier, in the week ended Jan. 31. That prior downturn had not only been its first weekly loss for 2014, but had also snapped a winning streak before that of four consecutive weeks since the beginning of the year and 11 straight weeks of gains dating back to early November of 2013. Since the beginning of this year, broad-market gains have now been seen in nine weeks, versus the one downturn.

In the latest week, 32 out of the 57 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black, with 25 ending in the red. That marked a clear deterioration from the pattern of great strength seen the week before, ended Feb. 28, when 58 of the sectors tracked posted gains and none had losses. In the interim, Advantage data recalculated and slightly trimmed its sector roster.

However, conditions were considerably weaker 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 outstanding. In the latest week, 16 of those sectors closed in the red, while 14 ended in the black. That stood in stark contrast from what those major sectors had done the week before, when for a second consecutive week, all 30 had posted gains against no losses.

The major sectors usually rise and fall pretty much in tandem with the broader overall market; the divergence between the two sector rosters seen last week, when the overall sector count was still modestly positive but the larger sectors had turned narrowly negative, was the first such difference seen since the week ended Sept. 9, 2013.

In the latest week, coal mining was the worst performer among the significantly sized sectors, while the food stores grouping was the best.

Printing and publishing remained the best performer among the major sectors so far on the year, but coal - hurt by its poor weekly showing - was also the worst year-to-date performer.

Index rise stopped

In line with the softer market performance shown by the behavior of the industry sectors, statistical indicators of general market performance meanwhile were lower across the board last week versus the previous Friday, when they had been higher all around.

Among those indicators was the widely followed Merrill Lynch High Yield Master II index, which posted its first weekly loss after four consecutive weekly gains, falling by 0.184%, in contrast to the previous week's 0.675% gain.

The index has now seen seven weekly gains in 2014, against three losses. In 2013, the index showed 33 weekly gains against 19 losses, while in 2012 it had notched 40 gains and 12 losses.

As of Friday, the index's year-to-date return had slipped to 2.57%, down from 2.759% the previous Friday and down as well from its high point of the year, Wednesday's reading of 2.812%. In 2013, the index had ended at 7.419%, its high point for the year, although that was well down from the 15.583% reading at which it had ended 2012.

Among its other components, the index showed an average price of 104.577957 on Friday, down from 104.915794 the previous Friday, which was also its high point for the year. However, it remained well up from its low for the year so far of 103.24599, set on Feb. 4, and up as well from 103.3161, where it had ended 2013.

Its yield to worst stood at 5.333%, up from 5.215% the previous Friday and from its lowest level for the year so far, 5.191%, recorded on Feb. 27. All of those levels were still well down from the index's high yield for the year of 5.735%, set on Feb. 4, and down as well from 5.671% at the end of 2013.

Its spread to worst over comparable Treasury issues stood at 399 basis points on Friday, out a little from 397 bps the previous Friday and from 395 bps on Thursday of this past week, its tightest level of the year. It was in from its wide point for the year so far, 444 bps, set on Feb. 4, as well as the 418 bps spread seen on the last day of 2013.

Coal caves in

Back on a sector-by-sector basis, Advantage Data meanwhile showed the bonds of coal-mining companies (down 1.02%) with the worst performance among any of the significantly sized sectors. It was a sharp reversal of the temporarily strong trend seen over the prior two weeks, when coal had been the best finisher each time, rising by 1.42% in the week ended Feb. 28 and by 0.80% in the week ended Feb. 21. Those two solid rises, in turn, had contrasted sharply with the weakness the sector had shown over a period of weeks earlier in the year, including having been the absolute worst-performing sector in several of those weeks.

The health care and lodging sectors (each down 0.37%), telecommunications (down 0.35%) and insurance carriers (down 0.29%) rounded out the week's Bottom Five list of the worst-performing sectors.

It was lodging's third consecutive week among the losers, having also been there the previous week with a 0.23% gain - one of the smallest sector rises in an otherwise strong week - and a 0.08% loss the week before that.

But telecom, like coal, had just recently been among the standout performers, having been on the Top Five list in each of the three previous weeks, including the week ended Feb. 28, which it jumped by 0.89%.

On the upside, the food stores sector (up 1.02%) was the clear leader among the significantly sized sectors, presumably helped by last week's big news coming from the supermarket industry - the pending $9 billion acquisition of Safeway Inc. by rival Albertsons' corporate parent, Cerberus Capital Management.

Also showing strength in the latest week were printing and publishing (up 0.51%), real estate (up 0.28%), metal mining (up 0.26%) and amusement and recreation (up 0.19%).

It was the printing group's second straight week among the leaders, having been there the week before with a 1.19% gain. But real estate had been the absolute worst performer among the key sectors the week before, with an anemic 0.04% gain.

Printers stay strong on year

With 10 weeks in the books for 2014 so far, printing and publishing (up 6.77%) was the best year-to-date performer among the significantly sized sectors for a sixth week in a row, helped by its second straight Top Five performance among the weekly gainers, as noted.

Petroleum refining (up 4.24%) regained second place, after having dropped by one notch the week before to just third-best.

It switched places with paper manufacturing (up 3.98%), which had been in the runner-up slot the week before, its fourth-week in that Number-Two position out of the previous five.

Food stores (up 3.65%), the week's best finisher, as noted, jumped to fourth-best among the key sectors on the year, although it had not been among the leaders previously.

Telecommunications, despite being among the week's weaker performers, stayed in the fifth-best slot for a fourth straight week with a 3.22% year-to-date return.

Among the underachievers, coal's big slide on the week, as noted, also pushed the sector back down to the bottom of the pile on a year-to-date basis (up just 0.67%), as it fell three positions from just fourth-worst the week before. Coal has now been the worst year-to-date performer among the major sectors for five weeks out of the last six.

Real estate (up 0.81%), helped both by its own relatively strong Top Five weekly performance and by coal's slide, moved up by one position to just the second-worst finisher among the key sectors.

Insurance carriers (up 1.84%) were third-worst, followed by fourth-worst holding companies and investment offices (up 1.89%) and automotive services (up 1.90%), the fifth-worst sector.

It was an improvement of sorts for the holding companies grouping, which had been the second-worst significantly sized sector the week before. But neither the insurers nor automotive services had been among the worst 2014 performers the week before.

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