Advantage Data: Real estate rolls as major high-yield sectors rebound

By Paul Deckelman

New York, Oct. 17 - The high-yield market was back in the black last week - for the first time in six weeks - as a majority of industry groupings showed gains, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

However, even with the latest upturn, declines have still been seen in five weeks out of the last six, including a consecutive losing streak dating back to the week ended Sept. 9, and in six weeks out of the last eight.

It was the 27th time this year that a majority of sectors ended on the upside, against 14 weeks of downturns - 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, other than the latest week's results, things have turned decidedly negative lately.

Of the 72 broad industry sectors into which Boston-based Advantage Data currently divides its high-yield universe, 64 finished in the black in the latest week, just four sectors were in the red and another four sectors did not show enough statistically meaningful activity to produce any kind of results.

That was a sharp turnaround from the bearish pattern seen the previous week, which ended Oct. 7, when 43 sectors posted negative returns, 25 had positive results, one was unchanged on the week and two sectors did not show any results (Advantage Data subsequently added one sector to its roster, bringing the total number up to 72 from 71 the week before).

And in another reversal of the prior week's negative pattern, all 30 of 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.

That was a sharp contrast to the week before, when 21 of the key sectors had negative results, eight were positive and one, coal mining, ended unchanged with a flat 0.00% reading.

Among specific major sectors in the latest week, bonds of real estate companies, metals miners and coal miners made the strongest showings.

With all sectors ending on the plus side of the ledger, there was no downside as such, but bonds of food store operators, publishers and machinery and computer manufacturers showed the smallest gains.

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, busted out of its recent slump and posted a gain for the first time in six weeks and only the second time in the past eight weeks. The last time it closed in the black was late September.

Real estate revival rolls on

Bonds of real estate companies had the best showing of any major sector for a second straight week, notching a spectacular 5.68% return, on top of the previous week's already-hefty 2.04% gain, which had marked the somewhat unusual feat of going from worst to first; in the week before that, ended Sept. 30, real estate had nosedived by 6.12%, its second straight week as the worst performer and third straight week among the big losers.

The gyrations show real estate to be probably the most volatile sector in the index; it has now been among the best performers in four weeks out of the last eight, but it has also been among the worst finishers in the other four weeks out of that eight-week span, including the three straight weeks on the downside, as noted.

Other sectors among the elite finishers this past week included metals mining (up 3.83%), coal mining (up 3.67%), metals processing (up 3.33%), automotive services (up an even 3.00%) and miscellaneous retailing (up 2.93%).

Metals mining has now been among the top finishers for two straight weeks. On the other hand, automotive services had been among the worst major-sector performers the previous week, when it was, in fact, the single biggest loser with a 1.43% loss on the week.

There was no real downside this past week, with all sectors finishing in the black, but some sectors had relatively modest returns, chief among them food stores (up 0.52%). It was the second straight week the grocers had been among the weakest performers.

Others having that unwanted honor this past week included publishing (up 0.75%), machinery and computer manufacturing (up 0.96%), paper manufacturing (up 1.08%), precision instrument manufacturing (up 1.33%) and electric and gas services (up 1.43%).

The machinery and computer makers had actually been among the best finishers the week before, and they have still been in the top tier in three weeks out of the last six.

Year-to-date returns improve

On a year-to-date basis 41 weeks into 2011, bonds of the major-sized sectors improved in the latest week, with fully 17 out of 30 showing cumulative returns of at least three full percentage points - well up from just seven the week before and from 13 sectors the week before that, which ended Sept. 30.

No sectors were above 7% last week, though one had returned more than 6% while three rose above 5%, versus one sector showing more than 7% but none above 6% or 5% the week before.

There were five sectors beating 4% and eight above 3% this time, versus the previous week's four sectors exceeding 4% and just two registering more than 3%.

The number of sectors with weak cumulative returns or even losses diminished after having multiplied rapidly in the previous week.

Six sectors had readings better than 2%, even with the week before, but the number with readings from 1% to 2% fell to just two from five the week before, while only one sector had a gain of more than zero but less than 1%, versus six the week before.

And the number of sectors in negative territory year to date declined to four after having doubled to six the week before.

Bonds of food store operators remained in the lead in the latest week with a 6.58% return for the year so far. They were followed by oil and gas exploration and production companies at 5.71%, electric and gas services at 5.61% and precision instrument makers at 5.54%.

Bringing up the rear, building construction showed a 3.21% loss, real estate showed a 1.94% deficit for the year, publishing was off by 1.43% and insurance carriers were down 0.13%.

Key gauge back in the black

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 gain of 2.546% - their first gain after five straight weeks on the slide, including the 0.801% deficit seen in the week ended Oct. 7.

The index has still been down in six weeks out of the last eight and in nine weeks out of the past 12, reflecting the disappearance of the momentum that the market had generated during the first half of the year.

The latest loss brought the index's year-to-date return back up to 0.002%, the first time it has ended the week still in the black since the 0.043% seen in the week ended Sept. 23. It had shown a 2.481% loss in the Oct. 7 week - only its second weekly downturn of 2011.

Although Friday's small year-to-date gain reflects improvement from its worst showing of the year, the 3.998% deficit recorded on Oct. 4, it still stands 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 94.851, a yield to worst of 9.144% and a spread to worst of 786 basis points over comparable Treasuries, versus a price of 92.597, a yield of 9.757% and a spread of 848 bps at the end of the previous week.

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