Advantage Data: Durable goods distributors, precision device makers tops amid junk bond rally

By Paul Deckelman

New York, Oct. 28 - The high-yield market's recent rallying trend continued in the week ended Friday as junk posted its fourth consecutive weekly gain and its eighth such advance in the last nine weeks, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

That mostly successful stretch was marred only by a loss in the week ended on Friday, Sept. 27, which snapped a string of four consecutive weeks of improvement before that.

The gain in the latest week was the 29th weekly advance that the junk market has seen so far this year, versus 14 losses.

Up through the middle of May, gains had been seen virtually every week, with just two back-to-back losses in early February marring that strong run. But then came a seven-week nosedive running from the week ended May 17 through the week ended June 28. After that, a choppy pattern was in effect - three straight weeks of gains starting in early July, followed by a week or two of alternating losses and gains here and there for a few weeks. But starting in the week ended Aug. 30, things have been on the upside since then, except for the one recent weekly loss.

In the latest week, 59 out of the 60 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black, with just one ending in the red.

That represented only an ever-so-slight easing from the week before, ended Friday, Oct. 18, when all 60 of those sectors showed gains, with no losses.

That robust trend was also seen 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. In the week ended Friday, all 30 of those sectors were finishing in positive territory, with none showing negative results, for a second consecutive week.

Among specific major sectors in the latest week, bonds of wholesale durable goods distributors and manufacturers of precision instruments such as medical devices turned in the best showings, while the real estate and automotive services sectors had the most lackluster results.

Index hits new '13 highs

Statistical indicators of general market performance were meanwhile mixed versus the previous week, after having been higher across the board for two straight weeks before that.

However, the total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, posted its fourth consecutive weekly gain. At the close on Friday, the index showed junk bonds having risen by 0.53% for the week, on top of the previous week's 0.911% advance.

The index has now seen 25 gains so far in 2013 against 18 losses. It had finished 2012 with 40 weekly gains versus 12 weekly losses.

As of Friday, the index's year-to-date return had moved up to 6.073% from 5.514% the previous week.

Friday's close set a new high mark for the year so far - its fourth straight session of notching new highs after having shattered the old zenith of 5.835%, which had stood since May 9. The week saw the cumulative return figure push above the psychologically significant 6% marker for the first time this year, recording its highest levels since the end of 2012, when the index had finished the year with a cumulative return of 15.583%, just a little below its peak for the year of 15.589%.

The index had fallen to its 2013 low point of 0.384% on June 25.

Among its other components, the index showed an average price of 103.5225 on Friday, up from 103.137871 a week earlier. Those levels remain well under the high price for the year of 107.222488, set on May 9.

The index's yield to worst stood at 5.68%, down from 5.7983% a week earlier. While having come in markedly from its high point for the year of 6.853%, set on June 25, it still remained well above its low yield for the year of 4.986% on May 9 - which was also the lowest all-time yield as well.

Its spread to worst over comparable Treasury issues tightened to 450 basis points from 455 bps the week before. The spread continued to steer a course in between its 2013 wide point of the year of 536 bps, set June 25, and its tightest level for the year so far of 427 bps over Treasuries, set on May 9.

Durable goods do the best

Back on a sector-by-sector basis, Advantage Data meanwhile showed the bonds of wholesale durable goods distributors and precision instrument manufacturers as the best-performers among the significantly sized groupings.

Durable goods was up by 0.81%, closely shadowed by the precision instrument companies, such as medical device manufacturers, which gained 0.80%.

The durable goods distributors had actually been among the least-notable finishers the week before, when they had notched a mediocre 0.45% return in what was a very strong week for most every other grouping.

But it was the third straight week among the best performers for the precision instrument companies, which had also been among the elite finishers the week before with a 0.88% return and a 0.41% gain the week before that.

Other major sectors showing strength on the week were petroleum refining (up 0.74%), telecommunications (up 0.70%) and the electric and gas utilities and paper manufacturing sectors, which were both up by 0.69%.

It was the second straight week among the big winners for telecom and for the utilities; both had been in that select circle the week before when each had returned 0.85% on the week.

For a second consecutive week, there was no downside as such, with almost all of the broad-market sectors and absolutely all of the significantly sized sectors continuing to show gains on the week, as noted.

Real estate (up 0.11%) had the week's worst showing. It was the second consecutive week among the Bottom Five worst-performing sectors for the sector, which had also been there with a relatively subdued 0.44% return the week before.

Other underachievers on the week included automotive services like vehicle-rental companies (up 0.26%), food stores (up 0.27%), health care providers (up 0.32%) and industrial machinery and computer manufacturers (up 0.36%).

Like real estate, the food stores were among the weakest finishers for a second time in a row, having also been there the week before with a 0.40% return.

Food stores ahead for year

Forty-three weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 41st straight week, posting a cumulative return of 16.52%. It remained the first, and so far the only major sector to hit double digits on a percentage basis this year.

Among the other year-to-date leaders, financial brokers, dealers and exchanges (up 8.12%) moved up by one position into the runner-up slot, after having been third-best the week before.

Non-computer electronic manufacturing (up 7.80%) also moved up one notch in the standings, to third-best, after having been in fourth place the previous week.

Amusement and recreation services (up 7.73%) tumbled by two positions, moving down to fourth-best after having been in second place the week before.

Depository financial institutions (up 7.69%) improved to fifth-best, even though the sector had not been among the year's leading sectors the week before.

On the downside, all of the weakest significantly sized sectors on the year so far held the same positions relative to one another that they had held during the week ended Oct. 18.

Coal mining (up 3.99%) remained the worst year-to-date performer among the major sectors for a 20th straight week. However, it did mark its sixth consecutive week of showing positive returns, after having wallowed in red ink for six weeks before that.

Electric and gas utilities (up 4.38%) was second-worst on the year for a 13th consecutive week, while building construction (up 4.83%) was third-worst for a ninth straight week.

Food manufacturing (up 4.88%) was fourth-worst on the year and telecom (up 5.16%) was fifth-worst, both for a second consecutive week.

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