Advantage Data: Financial brokers group top loser as high-yield major-sectors slide continues

By Paul Deckelman

New York, Nov. 28 - The high-yield market recorded sizable setbacks for a third consecutive week as a majority of industry groupings showed losses, according to weekly sector-tabulated bond-performance statistics supplied to Prospect News by Advantage Data Inc.

Showing the streaky, cyclical nature of the junk market over the past several months, those three weeks of losses - which included the week ended Nov. 10 and last week, both abbreviated because of the Veterans Day and Thanksgiving Day holidays, respectively, wrapped around a normal trading week ended Nov. 18 - stood in stark contrast to four straight weeks of gains before that, which dated back to the week ended Oct. 14.

That surge, in turn, had followed five straight weeks on the downside, a losing streak that stretched back to the week ended Sept. 9.

Last week was the 17th time this year that a majority of sectors showed losses, against 30 weeks of gains - although most of that lopsided almost 2-to-1 positive breakdown reflects the tremendous strength seen earlier in the year, when there was week-after-week of improvements.

Of the 71 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 64 finished in the red in the latest week, just six sectors were in the black and one showed neither a gain nor a loss.

That represented a strongly bearish move versus the more moderate trend seen the week before, when 48 sectors posted negative returns, 22 had positive results, one sector was unchanged and two other sectors did not show enough statistically meaningful activity to produce any kind of results.

In the interim, Advantage Data, which frequently tweaks its lineup of sectors, eliminated the two sectors which had shown no results at all, lowering the total number tracked to 71 from the prior week's 73.

In the latest week, 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, with none of them finishing in the black, extending and even strengthening the trend seen the week before, when 27 of the sectors had negative results, against just three positives.

Among specific major sectors in the latest week, bonds of financial brokers and exchanges, automotive services providers and electronics manufacturers had the biggest losses.

On the upside, such as it was, food store operators, machinery and computer manufacturers and paper producers had the smallest losses among the major sectors.

Looking at statistical indicators of overall market performance, junk's total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, ended the week on Friday lower for a fourth consecutive time, after three straight weeks before that on the rise.

Key measure continues lower

Junk bonds, as measured by the Merrill Lynch index, had a one-week loss of 1.275%, on top of the previous week's 0.705% downturn.

The index has now been down in seven weeks out of the last 10, as the junk market struggles to try and rebuild the strong momentum which the market had generated during the first half of the year, but which has been absent for much of the second half.

The downturns over the most recent four weeks, dating back to the week ended Nov. 4, followed three straight gains in the weeks ended Oct. 14 through Oct. 28. Those strong weeks, in turn, had followed five weeks on the slide dating back to early September.

The latest loss brought the index's year-to-date return down to 1.116% at Friday's close, versus 2.422% a week earlier, on Nov. 18, Those readings remain considerably below the recent peak level of 4.28%, set on Oct. 28, as well as the 2011 high-water mark of 6.362%, set on July 26. However, levels over the past few weeks have still been well up from the index's low point of the year, the 3.998% cumulative deficit recorded on Oct. 4.

Other components of the Merrill Lynch index also retreated on the week, but still continued to show a rebound from their more beleaguered early October levels.

As of Friday, the index showed an average price of 94.966, a yield to worst of 9.035% and a spread to worst of 798 basis points over comparable Treasuries, versus a price of 96.383, a yield of 8.679% and a spread of 762 bps at the end of the previous week.

Brokers most bearish

Back on a sector basis, Advantage Data meanwhile showed bonds of financial brokers and exchanges having the worst showing of any a significantly sized sector last week, when they were down by 1.68%. It was the second straight week the sector was among the worst performers; it had shown a 0.74% loss the week before.

Other underachievers this past week included automotive services providers - chiefly vehicle-rental companies - which lost 1.67%, as well as electronics manufacturers (down 1.59%), coal mining companies (down 1.46%) and chemical manufacturers (down 1.35%). It was the second straight week among the big losers for automotive services and the fifth consecutive week the coal miners have had that dubious distinction.

There was no upside as such, with all of the major sectors finishing in the red. However, relatively speaking, food stores had the best finish of any major sector for a third consecutive week, posting the smallest loss - 0.17% - on top of the index-leading gains of 0.28% and 0.54% seen the previous two weeks. It was the grocers' fourth straight week overall among the best sectors.

Other key sectors posting only relatively modest losses in an otherwise very negative week included machinery and computer manufacturers (down 0.18%), paper producers (down 0.26%), metals processing companies (down 0.44%%) and non-depository financial institutions (down 0.45%). The metals producers had also been among the winners the previous week.

Food stores firm year to date

On a year-to-date basis 47 weeks into 2011, bonds of food store operators remained in the lead among the significantly sized sectors in the latest week with a return of 9.78% for the year so far. They were followed by electric and gas services (up 7.81%), oil and gas exploration and production companies (up 7.27%) and food manufacturers (up 6.69%).

Bringing up the rear, building construction slipped into the red for the year, showing a 0.17% loss. Sectors posting relatively small cumulative gains on the year so far were real estate (up 0.36%) and publishing (up 0.72%).

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