Advantage Data: Auto services, amusement led week's high-yield rebound; insurers, utilities lagged

By Paul Deckelman

New York, March 29 - The high-yield market was back in the black in the week ended Friday as it recovered from the prior two weeks on the downside, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

The rebound represented a return to the previous pattern of strength which had been seen over the first nine weeks of 2011, part of a 14-week winning streak that dated back to Dec. 3, which was interrupted by the negative results in the weeks ended March 11 and March 18. On a longer-term basis, even including those two losing weeks, gaining sectors have still now outpolled losing sectors in 27 weeks out of the last 33, dating back to the week ended Aug. 13.

Resuming the trend of solidly, and sometimes overwhelmingly positive results most weeks, interrupted only by that two-week sojourn, some 63 of the 74 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 seven ending in the red and four sectors showing not enough statistically meaningful activity to produce any kind of results.

In the previous week, ended March 18, 41 sectors had recorded negative returns, against 27 posting positive results, one sector showing no change at all and four sectors with no discernable 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 clearly reversed the trend seen the previous week, when 20 of the sectors showed negative results and 10 had positive finishes.

Although none of the major sectors showed overwhelmingly strong results in the latest week, services sectors such as automotive, amusement and lodging led the rebound, along with energy groups like petroleum refining and coal mining.

On the downside, only the insurance carriers and electric and gas services sectors actually posted losses, although some other sectors, like depository and non-depository financial institutions, turned in particularly anemic positive returns.

On a statistical basis - mirroring the rebound in the sector-by-sector breakdown - 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 versus the previous week's cumulative return for the first time in three weeks.

Services sectors lead rebound

Among specific significantly sized sectors, the best-performing sectors this past week were automotive services - chiefly car rentals, up 0.55% on the week, amusement (up 0.48%) and lodging (up 0.45%). Each of those sectors had been among the worst performers in both of the previous two weeks, and lodging, in fact, had been the single worst-performing major sector in the March 18 week with a 0.49% loss.

Also showing some relative strength in the latest week were petroleum refining (up 0.41%), coal mining (up 0.40%) and the metals mining and machinery and computer manufacturing sectors (each up 0.37%).

On the downside, as mentioned, the insurers and the utilities were the only major sectors actually posting negative returns this past week, and even then, not by much - they were down by 0.07% and 0.05%, respectively.

Among key sectors posting only weak positive returns were the depository financials (up 0.02%), the non-depository financials (up 0.07%), chemical manufacturing (up 0.08%) and precision instrument manufacturers - chiefly medical device makers - (up by 0.12%).

The latter sector, as well as the depository financials and electric and gas services, had each been among the better performers over the previous two weeks, while the non-depository institutions had been among the elite finishers in the March 18 week only.

Petroleum refiners tops

On a year-to-date basis 12 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, including one above 5% year to date and seven others topping 4%.

Petroleum refining jumped back into the leading position it had relinquished the week before, with a 5.30% year-to-date return. That dropped the previous week's leader, depository financials (up 4.85%), back into the runner-up slot, followed by oil and gas exploration and drilling (up 4.36%), paper manufacturing (up 4.25%), wholesale durable goods distributers (up 4.14%), investment & holding offices (up 4.10%), miscellaneous retailing (up 4.05%) and amusement (up 4.01%).

On the downside, real estate barely stayed in the black for a second straight week with a 0.02% cumulative gain, after weeks of being the only major sector in the red for the year. Metals mining was up 1.06%. Seven key sectors had returns between 2% and 3%, and 13 were between 3% and 4%.

Key indicator regains footing

Looking at the overall domestic high-yield market, junk bonds, as measured by the Merrill Lynch High Yield Master II Index, rose by 0.28%, in contrast to the March 18 week's 0.071% loss, which had been its second downturn in a row and its third in four weeks.

With 12 weeks in the books so far this year, that left the index with a total return of 3.697% as of Friday - up from 3.408% the Friday before, though still down from its then-2011 peak level of 3.73%, set on March 9 (the index continued to rise on Monday, establishing a new high for the year of 3.77%).

The average price of a high-yield issue covered by the Master II finished at 103.493 at Friday's close, with a yield to worst of 6.973% and a spread to worst of 507 basis points over comparable Treasuries, versus a price of 103.358, a yield of 7.03% and a spread of 527 bps at the end of the previous week.

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