Advantage Data: Energy drilling, brokers led high-yield key-sector gain last week; retailing drops

By Paul Deckelman

New York, March 7 - The high-yield market showed yet another gain in the week ended Friday, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc., as it rose for a 14th consecutive week, a winning streak dating back to Dec. 3.

Gaining sectors have now outpolled losing sectors in 26 weeks out of the last 30, dating back to the week ended Aug. 13.

After somewhat lackluster results in the previous week, ended Feb. 25, the positive trend rebounded solidly back to the pattern which had been evident over most of the recent weeks.

Some 63 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 seven ending in the red, and three sectors showing not enough statistically meaningful activity to produce any kind of results.

The results represented a considerable improvement from the previous week, when for the first time in many weeks, there were as few as 45 sectors recording positive returns, with as many as 25 ending in negative territory and three sectors with no results.

Some 28 out 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, ended in the black this week, with only two finishing in the red. That too was a recovery from the more restrained gains seen the week before, when 20 of those sectors had positive returns, against 10 losses.

Oil and gas exploration and drilling operators led all of the major sectors this past week, followed by financial brokers and exchanges, with amusement companies and food manufacturers also showing strength. On the downside, only two major sectors, as noted, actually ended in the red - miscellaneous retailers and insurance carriers - while several other sectors notched only meager gains.

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, rose on a Friday-to-Friday basis after having fallen in the previous week for the first time in 13 weeks.

Energy improves the most

Among specific significantly sized sectors, the single best finisher this past week was the oil and gas exploration and drilling group, with a 0.65% return, followed by financial brokers and exchanges (up 0.56%), amusement companies (up 0.55%), food producers (up 0.50%), electronics manufacturers (up 0.46%) and health care (up 0.43%).

The amusement, food and health care sectors had all been among the big losers the previous week, with declines of 0.37%, 0.11% and 0.08%, respectively.

On the downside, miscellaneous retailing - a catch-all category that includes such varied kinds of merchants not easily otherwise categorized as flower shops, pet stores, art supply stores, cemetery memorial dealers, hot tub sellers and swimming pool supply stores, to name just a few - had the worst showing, down 0.80% on the week. As noted, that sector and insurance carriers (down 0.12%) were the only major sectors actually finishing in negative territory.

But real estate (up 0.01%), building construction (up 0.04%), electric and gas services (up 0.11%) and the paper sector and machinery and computer manufacturing sector (each up 0.14%) had only weak positive results.

Real estate was among the laggards for a second straight week, but the papermakers, insurers and electric and gas services companies had each been among the best performers the week before, the latter two for a second straight week and the utility operators actually the best-performing major sector that week, with a 0.60% gain.

Refining in lead on year

On a year-to-date basis nine weeks into 2011, bonds of most of the major-sized sectors have been strong, with 28 out of the 30 showing cumulative returns of at least two full percentage points or more, with 11 of those above 3% and eight more above 4% year to date.

Petroleum refining remains on top (up 4.83%), although backing off from the previous week's 5.03% gain, the first time this year any major sector had been above 5%. Insurance carriers, the previous week's only other sector above 4%, stayed as runner-up at 4.71%, followed by a number of sectors that moved up to 4%-plus territory - amusement (up 4.63%), wholesale durable goods distributors (up 4.38%), paper manufacturing (up 4.22%) and the investment and holding offices, brokers and exchanges and oil and gas exploration and drilling sectors, each just a shade over 4%.

On the downside, real estate remained the worst year-to-date performer among the majors, with a 0.21% cumulative loss, the only major sector in the red year to date.

Key indicator back on track

Looking at the overall domestic high-yield market, junk bonds, as measured by the Merrill Lynch High Yield Master II Index, rose by 0.354% on a week-to-week basis, in contrast with the previous week, when it was down by 0.06% - the first decline after 12 consecutive weeks before that, going back to early December.

With nine weeks in the books so far this year, that left the index with a total return of 3.673% as of Friday - a new peak level for 2011 so far - well up from 3.307% the Friday before.

The average price of a high-yield issue covered by the Master II finished at 103.952 at Friday's close, with a yield to worst of 6.873% and a spread to worst of 497 basis points over comparable Treasuries, versus a price of 103.906, a yield of 6.834% and a spread of 500 bps at the end of the previous week.

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