Advantage Data: Auto services, depository institutions worst as junk sectors struggled last week

By Paul Deckelman

New York, June 27 - The high-yield market remained under pressure last week, although its weakness was less pronounced than in the preceding two weeks, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

Junk was down for a third straight week and for the fourth time in five weeks, although it was still only the sixth weekly downturn seen so far this year.

The latest week's softer tone represented a continued deviation from the pattern of strength that had been 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 three weeks.

Some 42 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 27 closing in the black, one sector showing neither a gain nor a loss and another six sectors showing not enough statistically meaningful activity to produce any kind of results.

That continued, although not in such emphatic terms, the notable break from the trend of solidly, and usually overwhelmingly positive results that had been seen in most weeks. In the previous week, ended June 17, some 65 sectors posted negative returns, just four sectors ended with positive results, and six others showed no results.

Moderately reflecting that continued reversal of the usual pattern, 16 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 13 finishing in the black. One sector - transportation equipment manufacturing - clocked in with a flat 0.00% reading, neither a loss nor a gain.

However, that still-bearish tone was considerably more moderate than had been seen the week before, when all 30 of those major sectors showed negative returns and none had any positive results.

Among specific major sectors, bonds of automotive services providers and depository financial institutions had the most sizable losses in the latest week. On the upside, precision instrument makers, food manufacturers and electric and gas utilities had the best gains.

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

Automotive services weaker

Among specific significantly sized sectors, the automotive services sector - consisting chiefly of vehicle rental companies - had the sharpest loss, finishing down 0.47%. While the group had actually been among the better finishers in the previous week, with a relatively modest 0.21% loss in a week when most sectors did far worse, it has now been among the worst performers in five weeks out of the last six.

Also showing notable losses were bonds of the real estate and depository financial institutions sectors (both down 0.40%), metals processing (down 0.27%), wholesale durable goods distributors (down 0.26%) and financial brokers and exchanges (down 0.24%).

Real estate was among the underachievers for a third consecutive week - it was the single worst major-sector performer both the week before, and the week before that, ended June 10, with losses of 1.15% and 1.49%, respectively, and has now been among the worst laggards in four weeks out of the last five.

The wholesale durable goods distributors meantime earned that dubious distinction for a second straight week, while the depository financials had actually been among the smallest losers the week before.

On the upside, bonds of precision instrument manufacturers - chiefly medical device makers - had the strongest showing, up 0.36%. It was the sector's fifth consecutive week among the better performers.

Also in that elite group this week were food manufacturers and electric and gas service providers (both up 0.22%), electronics manufacturing (up 0.19%), publishing (up 0.16%) and health care (up 0.09%).

The utilities have now been among the strongest major sectors in five weeks out of the last six and seven weeks out of the last nine, while the electronics manufacturers have been there in two weeks out of the last three. In contrast, both the food manufacturers and publishing were among the worst performers the week before.

Food stores first for year

On a year-to-date basis 25 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, the same as the previous week, including one above 7% year to date and four above 6%, nine more above 5% and 10 others topping 4%.

Bonds of food store operators held their cumulative lead with a year-to-date return of 7.21%, followed by precision instrument manufacturers (up 6.55%) and electric and gas utilities (up 6.52%).

Bringing up the rear, real estate had a relatively weak 1.03% year-to-date return, followed by publishing (up 2.15%).

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 0.15%, their fifth consecutive week-over-week downturn. In the week ended June 17, the index was down by 0.659% for the period.

The five losses followed nine straight weeks of gains going back to late March, and left the index with a year-to-date return of 4.324% - down from 4.481% the previous Friday and well 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 101.774, a yield to worst of 7.40% and a spread to worst of 592 basis points over comparable Treasuries, versus a price of 102.082, a yield of 7.32% and a spread of 576 bps at the end of the previous week.

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