Advantage Data: Utilities perform the worst as major junk sectors continue losing streak

By Paul Deckelman

New York, Aug. 26 - The high-yield market continued to tread a negative path during the week ended Friday, posting its second consecutive loss and its fourth downturn in the last five weeks, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Demonstrating the recent choppy pattern in the junk market, the losses seen in the past two weeks reversed an upturn seen the week before that, ended Aug. 9, which had snapped a two-week losing streak in the weeks ended July 26 and Aug. 2.

Those downturns, meanwhile, had brought to a halt an earlier market rebound, which had seen junk post gains over the previous three weeks, dating back to the holiday-shortened week ended July 5. The July advances, in turn, had ended a seven-week nosedive dating back to the week ended May 17 and running all the way up through the week ended June 28.

The loss in the latest week marked the 13th weekly setback that the junk market has seen so far this year, against 21 weekly gains. Aside from the recent clusters of consecutive weekly losses, the other downturns had occurred back-to-back in the weeks ended Feb. 1 and Feb. 8.

On the upside, besides the gains posted lately, the market had seen a surge of 13 consecutive weeks between mid-February and mid-May, and earlier had opened 2013 with four straight advances, part of a 10-week surge that had started in late November of last year.

In the latest week, 49 of the 58 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the red, while seven ended in the black and two were unchanged on the week. That represented an extension of the negative pattern seen in the previous week, when 46 sectors showed losses and 11 had posted gains. In the interim, Advantage Data recalculated and slightly expanded its sector roster.

The continuation of the previous week's negative trend 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.

In the week ended Friday, 26 of the 30 sectors showed losses, against just three gains and one sector - non-depository credit institutions - finishing the week unchanged. The week before, 24 of those larger sectors had ended in the red, with six finishing in the black.

Among specific major sectors in the latest week, bonds of electric and gas utilities repeated as having had the worst showing, while paper from coal mining and metals mining concerns again was seen to have done the best.

Statistical indicators of general market performance were mixed, breaking a skid of four straight weeks in which they had been negative across the board. However, the total year-to-date return as measured by the widely followed Merrill Lynch High Yield Master II index continued to decline.

Index remains lower

The Merrill Lynch index showed junk bonds having lost 0.339% for the week as of the close Friday, following the previous week's 0.328% retreat. It was the fifth straight weekly loss, following two previous consecutive gains in July. Those advances, in turn, had broken a skid of eight straight weekly losses before that dating back to May 17.

The index has now seen 18 gains so far in 2013 against 16 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 2.478%, down from 2.827% at the end of the previous week, which had been the first time in more than a month, since early July, that the index had ended the week below the psychologically significant 3% mark.

The cumulative return remained well down from its peak level for the year so far of 5.835%, recorded on May 9, though still up 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%.

Among its other components, the index showed an average price of 101.417 on Friday, down from 101.913 a week earlier.

Its yield to worst stood at 6.355%, up from 6.25% 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 also the lowest all-time yield as well.

The index's spread to worst over comparable Treasury issues widened to 484 basis points from 479 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.

Utilities off again

Back on a sector basis, Advantage Data meanwhile showed the bonds of electric and gas utility operators having done the worst among the significantly sized junk market groupings, losing 0.69% on the week. It was the second straight week the utilities turned in the worst showing, having also done so in the week ended Aug. 16, when they were down by 0.54% on the week.

Other notable losers for the week were telecommunications (down 0.64%), chemical producers (down 0.59%), and the non-computer electronics manufacturers and the paper makers (both down 0.55%).

It was the third consecutive week among the Bottom Five worst performers for telecom, chemicals and electronics, which had each been there the week before with losses of 0.47%, 0.50% and 0.44%, respectively.

On the upside, coal mining did the best among the significantly sized sectors for a second straight week, with a 1.21% gain, on top of the 0.29% rise seen the week before - when the miners had accomplished the notable feat of having gone from worst to first. In each of the two previous weeks, ended Aug. 2 and Aug. 9, coal had been the worst performer, with losses of 0.81% and 1.48%, respectively, and the sector had been among the worst losers over three straight weeks at that point.

Metals mining (up 0.11%) and publishing and printing (up 0.08%) were the only other significantly sized sectors finishing in the black this week, besides coal. Non-depository credit institutions, as noted, were unchanged on the week, their 0.00% reading signifying neither a gain nor a loss.

The Top Five list of the week's best performers was rounded out by the financial brokers, dealers and exchanges sector, which was down by only a relatively modest 0.06%.

It was the second straight week among the elite finishers for the publishers and the financial brokers, and the third week in that select circle for metals mining; the week before, they had been up 0.19%, 0.03% and 0.25%, respectively.

Food stores firmest for year

Thirty-four weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 32nd straight week, posting a cumulative return of 12.68%. It remained the first, and so far the only major sector to hit double digits on a percentage basis this year.

All of the other year-to-date leaders also held the same positions relative to one another that they had occupied during the week ended Aug. 16. Publishing and printing (up 7.92% on the year) was holding second place for a third consecutive week, and the insurance carriers (up 6.60%) were in third place, also for a third straight week.

Non-computer electronics manufacturers (up 5.71%) were fourth-strongest on the year while amusement and recreation services (up 5.67%) were fifth-best, both for a second week in a row.

Among the underachievers for 2013 so far, coal mining (down 5.47%) remained the most anemic among the significantly sized sectors for an 11th straight week and also stayed in the red zone on the year for a third straight week. despite its relatively strong showing on the week. Coal was again the only sector in the red for the year this week.

Electric and gas utilities - hurt by their second consecutive week's-worst finish - were second-worst on the year for a fourth consecutive week, with a lackluster 1.56% return. Metals mining, not among the previous week's worst year-do-date performers, tumbled to third-worst with a sedate 2.41% return.

Telecom dropped by one notch, to fourth worst with a 2.74% return, after having been only fifth-worst the week before. It traded places with building construction, which improved, relatively speaking, to just fifth-worst, with a 2.81% return for the year, after having been fourth-worst the two weeks before that.

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