Advantage Data: Food stores' rebound led major-sector gain last week; real estate struggles

By Paul Deckelman

New York, Jan. 31 - The high-yield market strengthened in the week ended Friday, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc. It rose for a ninth consecutive week, a winning streak dating back to Dec. 3.

Gaining sectors have now outpolled losing sectors in 21 weeks out of the last 25, dating back to the week ended Aug. 13.

Some 64 of the 73 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black in the latest week, with just three ending in the red and six sectors showing not enough statistically meaningful activity to produce any kind of results.

The performance represented an improvement from the previous week, ended Jan. 21, when there were 54 sectors recording positive returns, with 12 ending in negative territory, one sector unchanged, showing neither a gain nor a loss, and the same six sectors with 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 this week, with none showing any actual losses. That extended and reinforced the bullish trend seen the week before, when 23 of those sectors had positive returns, six had negative results and one sector - metals processing - showed neither a gain nor a loss.

The usually underperforming food stores group put on a rare show of strength to lead all of the major sectors this past week, with paper manufacturers and petroleum refiners also turning in notable gains.

On the downside, while no major sectors ended in the red, as noted, the recently underperforming real estate group continued to lag the others, notching but a meager gain.

On a statistical basis, the junk market's total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, continued to show solid gains four weeks into 2011, with advances seen each day of the week. It was the ninth straight week of continued advances for the index.

Food stores firm the most

Among specific significantly sized sectors, the single best finisher this past week - amazingly - was food stores, whose bonds showed a 1.07% gain, the only major sector improving by more than a full percentage point.

It was a sharp turnaround for a sector which has recently been one of the consistently weakest performers, showing up among the worst finishers in six out of the previous seven weeks, including the week ended Jan. 21 - although the volatile group has now also finished among the best performers in two weeks out of the last three.

Also showing good upside in the latest week were paper manufacturing (up 0.82%), petroleum refining (up 0.73%), the publishing and non-depository financial institutions sectors (both up 0.65%) and business services (up 0.63%). Business services, the non-depository financials and the papermakers were all also among the elite finishers the week before.

On the downside, as noted, no sectors actually finished in the red this past week. But real estate continued to struggle, its bonds turning in the weakest showing among all of the significantly sized sectors for a third consecutive week with a gain of a mere 0.03%. The week before, it had not only been the worst finisher among the key sectors, but of all 73 industry sectors tracked by Advantage Data.

While no sectors posted losses this week, some did have relatively just modest gains versus all of the other sectors, including machinery and computer manufacturers (up 0.10%), electronics manufacturing (up 0.21%), financial brokers and exchanges (up 0.25%), chemical manufacturing (up 0.28%) and insurance carriers (up 0.34%). Like real estate, the brokers and exchanges group has now been among the laggards for three straight weeks. But the insurers had been among the best performers in each of the previous two weeks before their fall from grace.

Papermakers, refiners tops

On a year-to-date basis four weeks into 2011, bonds of most of the major-sized sectors have been strong, with 26 out of the 30 showing cumulative returns of at least one full percentage point or more, up from 21 the previous week, and a full eight of those above 2%, against just one the week before.

Paper moved into the lead with a 2.52% year-to-date gain, followed by petroleum refining (up 2.48%), both leap-frogging the previous leader, amusement (up 2.39%). These were followed by business services (up 2.21%), non-depository financial institutions (up 2.12%), the coal mining and the oil and gas exploration and drilling sectors (both up 2.04%) and depository financial institutions (up 2.00%).

On the downside, real estate, not surprisingly, remained the worst year-to-date performer among the majors and the only one showing a loss for the year so far (down 0.33%). Others failing to break the 1% return mark were metals mining (up 0.33%) and two sectors which didn't miss it by very much - financial brokers and exchanges (up 0.92%) and machinery and computer manufacturing (up 0.98%).

Key indicator adds to gains

Looking at the overall domestic high-yield market, junk bonds, as measured by the Merrill Lynch High Yield Master II Index, continued to rise for a ninth consecutive week, gaining 0.564% in the week ended Friday, on top of the 0.186% advance seen the previous, holiday-shortened Jan. 21 week. Gains were seen in all five sessions of the most recent week.

That left the index with a robust total return of 2.093% as of Friday - yet another new peak level for the year so far - up from 1.521% the week before.

The average price of a high-yield issue covered by the Master II finished at 103.385 at Friday's close, with a yield to worst of 7.005% and a spread to worst of 529 basis points over comparable Treasuries, versus a price of 102.953, a yield of 7.146% and a spread of 530 bps at the end of the previous week.

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