Advantage Data: Real estate, amusement led continued key-sector gains last week; chemicals weak

By Paul Deckelman

New York, April 5 - The high-yield market notched its second consecutive gain in the week ended Friday as it continued to recover 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 continued rebound represented a return to the previous pattern of strength that had been seen over the first nine weeks of 2011, part of a 14-week winning streak that dated back to Dec. 3 but which was interrupted by the negative results in the weeks ended March 11 and March 18.

On a longer-term basis, gaining sectors have now outpolled losing sectors in 28 weeks out of the last 34, 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 61 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 nine 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 25, there were 63 sectors that had recorded positive results, against just seven posting negative returns and four sectors with no results.

For a second consecutive week, 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.

Among specific sectors, real estate, amusement, food stores and depository financial institutions showed notable strength in the latest week.

On the downside, only chemical manufacturing and insurance carriers actually finished in the red, although some other sectors, like paper manufacturing, automotive services and transportation equipment manufacturing, turned in particularly anemic positive returns.

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 versus the previous week's cumulative return for a second straight week.

Real estate leads rally

Among specific significantly sized sectors, the best-performing sectors this past week were real estate (up 0.87%), amusement (up 0.60%), food stores and depository financial institutions (each up 0.53%), metals mining (up 0.43%) and investment and holding offices (up 0.37%).

It was the second week among the elite finishers for amusement and for metals mining, which were each there the week before with returns of 0.48% and 0.37%, respectively. The depository institutions were actually among the worst finishers the week before, when they were up a mere 0.02%, but the group has still now been among the best performers in three weeks out of the last four.

On the downside, only chemical manufacturing and insurance carriers actually finished in the red, and even then, not by much, with respective losses of 0.07% and 0.02%. It was the second straight week among the underperformers for both, which had weak returns of 0.08% and minus 0.07%, respectively, in the March 25 week, the latter the worst single performer that week.

Several other sectors had only weak positive returns, including paper manufacturing, automotive services and transportation equipment manufacturing (each up by 0.07%), and electric and gas services and non-depository financial institutions (each up 0.15%). The latter two sectors were also among the weak finishers the week before, when they had respective returns of minus 0.05% and 0.07%.

Automotive services was actually the previous week's single best major-sector finisher, with a 0.55% return that week, but it has still now been among the worst finishers in three out of the last four weeks.

Depository financials in lead

On a year-to-date basis 13 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 three above 5% year to date and seven others topping 4%

The depository financial institutions sector regained the lead it had relinquished the week before, posting a 5.52% cumulative 2011 return so far. That dropped the previous week's leader, petroleum refining (up 5.16%) back into the runner-up slot, followed by financial brokers and exchanges (up 5.01%), food stores (up 4.97%), amusement (up 4.80%), paper manufacturing (up 4.64%) and oil and gas exploration and drilling (up 4.61%).

Also showing some year-to-date strength were metals production (up 4.24%), miscellaneous retailing (up 4.17%) and precision instrument manufacturers, chiefly medical device makers, (up 4.14%).

On the downside, real estate had a relatively weak 1.27% year-to-date return, followed by metals mining (up 1.44%), automotive services (up 2.44%), machinery and computer manufacturing (up 2.70%), electronics manufacturing (up 2.76%) and building construction (up 2.97%).

Key indicator adds to gains

Looking at the overall domestic high-yield market, junk bonds, as measured by the Merrill Lynch High Yield Master II Index, rose by 0.357%, on top of the March 25 week's 0.28% gain, which had followed two previous weeks of downturn in the index.

With 13 weeks in the books so far this year, that left the index with a total return of 4.067% as of Friday, up from 3.697% the Friday before and at the time a new peak level for 2011 (the index continued to rise on Monday, establishing a new high for the year of 4.258%).

The average price of a high-yield issue covered by the Master II finished at 103.698 at Friday's close, with a yield to worst of 6.985% and a spread to worst of 498 basis points over comparable Treasuries, versus a price of 103.493, a yield of 6.973% and a spread of 507 bps at the end of the previous week.

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