Advantage Data: Real estate, retail led plunge, but food stores firm

By Paul Deckelman

New York, May 31 - The high-yield market tumbled in the week ended Friday after having posted gains over nine consecutive weeks dating back to March 25, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

The downturn represents a sharp departure from the pattern of strength seen in the sector breakdowns for most of this year; after advances were recorded in each of the first nine weeks of this year - part of a 14-week winning streak that dated all the way back to last Dec. 3 - that streak was snapped by negative results over two weeks in mid-March. The sectors rebounded later that month and had been on the rise ever since then until the latest week, which was only the third retreat on the year.

Breaking the trend of solidly, and usually overwhelmingly positive results most weeks, 48 of the 76 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the red in the latest week, with 24 sectors ending in the black and another four showing not enough statistically meaningful activity to produce any kind of results. In the week before, ended May 20, there were 59 sectors showing positive returns, with 12 sectors posting negative numbers, and five showing no results.

Reflecting that sudden deterioration, 20 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 red this week, with 10 finishing in the black. In the previous week, 27 sectors showed positive results against three sectors showing a loss.

Among specific sectors, bonds of real estate companies and miscellaneous retailers showed particular weakness in the latest week. On the upside, food stores, electric and gas utilities and building construction stood out as islands of strength in a sea of mostly losses.

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, fell on a Friday-to-Friday basis versus the previous week's cumulative return for the first time in 10 weeks.

Real estate leads retreat

Among specific significantly-sized sectors, the worst performing this past week was real estate, whose bonds lost 0.67%. It was the third time in the last five weeks that the sector was among the worst finishers.

That was followed downward by miscellaneous retailers (down 0.53%), machinery and computer manufacturing (down 0.44%), coal mining (down 0.31%), automotive services like vehicle-rental companies (down 0.29%) and publishing (down 0.28%).

It was automotive services' second straight week among the underachievers, and publishing's third. The retailers have now been among the worst finishers in two weeks out of the last four, and coal mining has been down there in four weeks out of the last five. In contrast, machinery and computer manufacturing had been among the best finishers the week before, when the sector posted a 0.52% gain.

On the upside, food stores was clearly the best-performing sector, its bonds gaining 1.11%. That was a solid turnaround from the week before, when the grocers were among the worst finishers with a 0.12% loss, but they have still now been among the top finishers in five weeks out of the last six.

Also showing some strength in a generally down week were electric and gas services (up 0.77%), building construction (up 0.71%), precision instrument manufacturing, mainly medical devices (up 60%), healthcare (up 0.21%) and the paper manufacturing and insurance carriers sectors, each gaining 0.15%.

It was the second straight week among the elite finishers for the utilities, which have also now been among the best performers in four weeks out of the last five, and for the healthcare names.

Brokers grab lead for year

Despite the latest week's downturn, on a year-to-date basis 21 weeks into 2011, bonds of the major-sized sectors have been strong, with 27 out of 30 showing cumulative returns of at least three full percentage points, including one above 8% year-to-date and three above 7%, nine more above 6%, seven others topping 5% and an additional four above 4%.

Bonds of financial brokers and exchanges had the best cumulative return at 8.28%, leap-frogging over the previous week's leader, food-store operators, (up 7.61%). They were followed by depository financial institutions (up 7.24%) and electric and gas services (up 7.02%).

Bringing up the rear, publishing had a relatively subdued 2.01% year-to-date return, followed by real estate (up 2.25%), metals mining (up 2.94%) and building construction (up 3.86%).

Key indicator takes a hit

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 loss as of Friday of 0.187%, in contrast to the previous week's 0.13% gain. It was the first week-over-week loss after nine straight weeks of gains, and left the index with a year-to-date return of 5.872% - down from the 6.071% cumulative gain posted at the end of the week ended May 20, the 2011 peak level so far.

As of Friday, the index showed an average price of 104.099, a yield to worst of 6.76% and a spread to worst of 523 basis points over comparable Treasuries, versus a price of 104.460, a yield of 6.66% and a spread of 506 bps at the end of the previous week.

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