Advantage Data: Real estate wipeout deepens as major high-yield sectors slide again

By Paul Deckelman

New York, Oct. 3 - The high-yield market was in the red last week for a fourth consecutive time and for the fifth time in the last six weeks as a majority of industry groupings showed losses, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

It was the unlucky 13th time this year that a majority of sectors ended on the downside, against 26 weeks of upturns. Although most of that lopsided positive breakdown reflects the tremendous strength seen early in the year when there was week-after-week of improvements.

After the market's peak levels in late May, upturns and downturns were evenly matched for a time with a week or two of one, followed by a week or two of the other. However, things have taken a decidedly negative turn lately.

Of the 71 broad industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 66 finished in the red in the latest week, two sectors were in the black and another three sectors did not show enough statistically meaningful activity to produce any kind of results.

That represented a continuation - and an intensification - of the bearish pattern seen the previous week, which ended Sept. 23, when 59 sectors posted negative returns, 10 had positive results and three sectors did not show any results. (Advantage Data subsequently dropped one sector from its roster, bringing the total number down to 71 from 72 the week before).

And in another confirmation of the prior week's pattern, 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 red this week.

None at all finished in the black, extending and deepening the 29-to-1 negative breakdown seen the week before.

Among specific major sectors in the latest week, bonds of real estate, lodging and coal-mining companies showed the worst losses.

No major sector showed a gain, although a number of sectors posted relatively small losses for the week, including non-depository financial institutions, publishing and food manufacturers.

Among statistical indicators, the junk market's total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, fell for a fourth consecutive week and for the fifth time in the past six weeks, also sliding into the red for the first time this year.

Real estate retreat now a rout

Bonds of real estate companies nosedived by 6.12%, by far the worst showing among the significantly sized sectors. It was the third consecutive week the sector had that unwanted honor, also having plunged by 2.90% in the Sept. 23 week, on top of its 1.03% loss the week before that.

The volatile sector, which had actually showed some strength in the several weeks before its swoon began, now has been among the worst performers in four weeks out of the last six.

Also among the main underachievers in the latest week were lodging (down 2.65%), coal miners (down 2.26%), metals mining (down 1.82%), financial brokers and exchanges (down 1.79%), and electronics manufacturers (down 1.48%).

All but the latter sector were making a return trip to the ranks of the biggest losers; like real estate, the brokers and exchanges group now has been on the list for three consecutive weeks.

Lodging, coal mining and metals mining were there for a second straight time. Lodging now has been among the major losers in three weeks out of the last four and in five weeks out of the last seven.

There were no upsiders this week, with all key sectors finishing in the red. Among the sectors suffering relatively smaller losses than the others were non-depository financial institutions (down 0.19%), publishing (down 0.34%), food manufacturing (down 0.61%), paper manufacturing (down 0.63%), insurance carriers (down 0.75%), and food stores (down 0.76%).

It was the second straight week on the list for food stores, which had the best showing the week before when it was up 0.56%, the only large-sized sector actually finishing in the black. The grocers now have been among the elite finishers in three weeks out of the last four. Food manufacturing also made the grade for a second straight week.

Food stores still first

On a year-to-date basis 39 weeks into 2011, bonds of the major-sized sectors have turned only modestly strong, with 13 out of 30 showing cumulative returns of at least three full percentage points. That was down from 20 sectors the week before.

One sector was more than 7% and another topped 5% - a comedown from the week before when one sector registered a more than 8% year-to-date gain, two others topped 6% and one was more than 5%.

There were four sectors beating 4% and seven above 3% this time, versus the previous week's five sectors exceeding 4% and 11 at more than 3%.

The number of sectors in negative territory year to date held steady at three for a second consecutive week.

Bonds of food store operators remained in the lead in the latest week with a 7.41% return for the year so far. They were followed by precision instrument makers at 5.36%, electric and gas services at 4.99% and oil and gas exploration and production companies at 4.90%.

Bringing up the rear, building construction fell to a 3.72% loss, real estate - the week's biggest loser - showed a 1.89% deficit for the year, and publishing was off by 1.84%. Brokers and exchanges have eked out a meager 0.07% return for 2011, with lodging returning an equally puny 0.11%.

Key gauge slides into the red

Looking at the overall domestic high-yield market, junk bonds, as measured by the Merrill Lynch High Yield Master II index, had a one-week loss of 1.736% as of Friday. This was the index's fourth consecutive downturn, fifth in six weeks and eighth in the last 10 weeks.

The losses reflect the complete disappearance of the momentum that the market had generated during the first half of the year. The week's loss was one of the largest weekly downturns of 2011. The week before, the index showed a 1.582% decline.

The latest loss left the index showing a year-to-date loss of 1.693% - its first weekly downturn of 2011 - versus the previous Friday's barely positive 0.043% return.

Those results stood in stark contrast to the 2011 peak level of 6.362%, set on July 26.

As of Friday, the index showed an average price of 93.521, a yield to worst of 9.511% and a spread to worst of 834 basis points over comparable Treasuries, versus a price of 95.412, a yield of 9.002% and a spread of 798 bps at the end of the previous week.

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