Advantage Data: Real estate, auto services led key-sector nosedive last week, utilities edge up

By Paul Deckelman

New York, June 13 - The high-yield market swooned badly last week, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

Junk was down for the second time in the last three weeks, though it was only the fourth weekly downturn seen this year so far.

Still, the retreat represented a deviation 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 2011 - 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 went on a nine-week tear. However, things have been choppy since then, with a fall in the May 27 week, a rebound in the week ended June 3, and another fall in the latest week, ended Friday.

In a notable break from the trend of solidly, and usually overwhelmingly positive results most weeks, 58 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 14 sectors ending in the black and another four showing not enough statistically meaningful activity to produce any kind of results.

In contrast, the previous week showed 45 sectors posting positive returns, with 27 sectors producing negative results and the other four showing no results.

Reflecting the reversal, 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 red this week, with just two finishing in the black, in stark contrast with the previous week's 20 sectors showing positive results against 10 sectors showing a loss.

Among specific major sectors, bonds of real estate companies and automotive services companies - chiefly vehicle rental - showed particularly large losses in the latest week. On the upside, electric and gas services and food stores were the only major sectors actually posting gains, and even these were small.

Among statistical indicators, 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 a third consecutive week, after having been on the upside for nine straight weeks before that.

Real estate leads rout

Among specific significantly sized sectors, the volatile real estate sector had the sharpest loss in the latest week, plunging 1.49%. That continued a dizzying round of gyrations, since real estate had been the worst-performing sector in the week ended May 27 with an 0.67% loss but then completely turned that around in the following week, ended June 3, going from worst to first with a 0.52% gain - only to once more switch gears in the latest week as it went from first to worst.

Also showing notable losses were automotive services (down 0.96%), coal mining (down 0.84%), insurance carriers (down 0.71%), amusement (down 0.63%) and lodging (down 0.57%). It was the fourth straight week among the underachievers for auto services, which in fact had been the single worst-performing major sector in the June 3 week, when it lost 0.33%. Coal mining was not among the big losers the week before, but has been part of that group now for five weeks out of the last seven. In contrast, insurance carriers had been among the best finishers in each of the previous two weeks.

On the upside, there wasn't much to brag about. Electric and gas services had a 0.15% gain, the best among the woeful major-sectors group. It was the fourth straight week among the elite performers for the utilities, and the sixth week out of the last seven.

Food stores (up 0.02%) was the only other key sector actually finishing in the black; the week before, it had been among the worst performers with an 0.29% loss. The volatile grocers group has now been among the best finishers in two weeks out of the last three and six weeks out of the last eight, but was also among the worst performers in two weeks out of that eight-week period.

Several other sectors had relatively small losses in an otherwise very negative week, including precision instrument manufacturing (down 0.09%), non-depository financial institutions (down 0.10%), electronics manufacturing (down 0.13%) and investment and holding offices (down 0.15%). It was the third straight week among the better performers for the precision instruments grouping, consisting chiefly of medical device manufacturers.

Food stores in first for year

On a year-to-date basis 23 weeks into 2011, bonds of the major-sized sectors have been strong, with 28 out of 30 showing cumulative returns of at least three full percentage points, including two above 7% year to date and six above 6%, nine more above 5% and seven others topping 4%.

Bonds of food store operators surged into the lead with a year-to-date return of 7.63%, followed by electric and gas utilities (up 7.30%) and depository financial institutions (up 6.80%).

Bringing up the rear, publishing had a relatively weak 1.77% year-to-date return, followed by real estate (up 1.95%) and building construction (up 3.22%).

Key indicator slide continues

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 0.533%, their third consecutive week-over-week loss. In the week ended June 3, the index was down by 0.127% for the period, and it fell by 0.187% in the week ended May 27.

Those back-to-back-to-back losses followed nine straight weeks of gains going back to late March and left the index with a year-to-date return of 5.174% - down from 5.738% the previous Friday and down further 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 102.933, a yield to worst of 7.14% and a spread to worst of 541 basis points over comparable Treasuries, versus a price of 103.655, a yield of 6.97% and a spread of 557 bps at the end of the previous week.

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