Advantage Data: Real estate, publishing worst as major-sector nosedive continued last week

By Paul Deckelman

New York, June 20 - The high-yield market's nosedive continued and intensified last week, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

Junk was down for a second straight week and for the third time in four weeks, making the fifth weekly downturn seen this year so far - still a relative rarity overall.

The latest week's retreat represented a continued 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 declines in each of the past two weeks.

Some 65 of the 75 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 just four closing in the black and another six sectors showing not enough statistically meaningful activity to produce any kind of results, continuing the notable break from the trend of solidly, and usually overwhelmingly positive results most weeks.

In the previous week, ended June 10, some 58 sectors posted negative returns, 14 sectors ended with positive results and four others showed no results.

Reflecting that continued reversal of the usual pattern, all 30 of the 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 none finishing in the black. That extended the trend seen the week before, when 28 of those major sectors showed negative returns and two had positive results.

Among specific major sectors, bonds of real estate companies and publishers showed particularly large losses in the latest week. On the upside, coal miners and precision equipment manufacturers showed relatively small losses.

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 fourth consecutive week, after having been on the upside for nine straight weeks before that.

Real estate retreat continues

Among specific significantly sized sectors, the real estate sector had the sharpest loss of all of them for a second consecutive week, plummeting by 1.15% in the week ended Friday, on top of the 1.49% plunge seen in the week ended June 10, when it went from first (in the week ended June 3) to worst. The volatile grouping has now been the single worst major-sector performer in three weeks out of the last four - and the fourth of those weeks was the June 3 week.

Also showing notable losses in the latest week were publishing (down 0.89%), insurance carriers (down 0.81%), lodging (down 0.78%) wholesale durable goods distributors (down 0.73%) and food manufacturing (down 0.69%). It was the second straight week among the underachievers for both lodging and insurance.

On the upside, there was no actual upside, with all 30 of the significantly sized sectors showing negative returns this past week, although some were much more or less negative than others. Among those showing the smallest losses - the best performers, relatively speaking - coal mining had the smallest loss at 0.08%. The week before, the sector had been among the worst names and has been so now in five weeks out of the last eight.

Other sectors posting relatively modest losses included precision equipment manufacturing (down 0.13%), metals mining (down 0.15%), automotive services (down 0.21%), depository financial institutions (down 0.24%) and food stores (down 0.25%).

The precision instrument manufacturers - chiefly medical device makers - have now been among the top performers, relatively speaking, for four straight weeks while the food stores have been in that elite group for two straight weeks, in three weeks out of the last four and longer term, in seven weeks out of the last nine. Automotive services, though - chiefly vehicle rental - had previously been among the worst performers over four straight weeks.

Food stores in first for year

On a year-to-date basis 24 weeks into 2011, bonds of the major-sized sectors have been strong, with 25 out of 30 showing cumulative returns of at least three full percentage points - although that was down from the prior week's 28 of 30 - including one above 7% year to date and five above 6%, nine more above 5% and nine others topping 4%.

Bonds of food store operators held their cumulative lead with a year-to-date return of 7.65%, followed by petroleum refining (up 6.60%) and electric and gas utilities (up 6.54%).

Bringing up the rear, publishing had a relatively weak 1.12% year-to-date return, followed by real estate (up 2.09%).

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 0.659%, their fourth consecutive week-over-week loss. In the week ended June 10, the index was down by 0.533% for the period.

The four losses followed nine straight weeks of gains going back to late March and left the index with a year-to-date return of 4.481% - down from 5.174% 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 102.082, a yield to worst of 7.32% and a spread to worst of 576 basis points over comparable Treasuries, versus a price of 102.933, a yield of 7.14% and a spread of 541 bps at the end of the previous week.

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