Advantage Data: Retailing, device makers strongest key sectors of high-yield market last week

By Paul Deckelman

New York, July 11 - The high-yield market posted its second strong gain in as many weeks as it continued to bounce back from a recent string of losses, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

Those two weeks of upturn followed three straight weeks before that on the downside and four weeks there out of the last seven, but as 2011's second half got under way, only six weekly downturns had been recorded year-to-date, against 21 weeks when high-yield ended on the upside.

The stronger tone seen over the past two weeks represented a sharp break with the previous three weeks but also marked a definitive return to the pattern of strength that has 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 Dec. 3 - that run was snapped by negative results over two weeks in mid-March. The sectors rebounded later that month and went on another 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 next three weeks, followed by the latest two-week rally.

Some 62 of the 71 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 just four closing in the red and another five sectors showing not enough statistically meaningful activity to produce any kind of results.

That was a continuation of the pattern seen the week before, ended July 1, when 63 sectors posted positive returns, seven sectors ended with negative results and six others showed no results (Advantage Data reduced the overall number of sectors into which it divides the bonds it follows by five in the most recent week). It had been quite a different story the week before that, ended June 24, when 42 sectors had negative returns, 27 sectors finished on the upside, one sector indicated neither a gain nor a loss and six others showed no results.

Reflecting that return to the usual pattern following the three-week losing streak, 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 black this week, with none finishing in the red.

The results extended and, in fact, intensified the trend seen in the July 1 week, when 28 of those major sectors had showed positive returns, against only two finishing with negative numbers, reversing the June 24 week's results - 16 of the major sectors with negative returns, against 13 with positive returns and one unchanged with a flat 0.00% reading.

Among specific major sectors, bonds of miscellaneous retailers, precision instrument manufacturers and coal miners showed the strongest gains, while on the downside, petroleum refiners and wholesale durable goods distributors showed only weak 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, rose on a Friday-to-Friday basis versus the previous week's cumulative return for a second straight week, after five consecutive weeks of decline before that.

Retailing leads rally

Among specific significantly sized sectors, miscellaneous retailing showed the strongest gain, returning 1.21%, followed by precision instrument manufacturing - chiefly medical device makers - which was up 1.01%. That marked a strong rebound for the latter group, which had been the single worst-performing major sector in the week ended July 1, when it lost 0.56%. Before that, however, it had been among the best performers for five consecutive weeks, meaning it has now been in that elite group for six weeks out of the last seven.

Other significant gainers in the latest week included coal mining (up 0.98%), real estate (up 0.90%), metals mining (up 0.88%) and oil and gas exploration and production (up 0.83%).

It was the second straight week among the big winners for coal mining, which has now been there in three weeks out of the last four, and for real estate - the best-performing key sector the previous week, when it zoomed by 1.71%.

However, the volatile real estate sector had been among the worst performers in the three weeks before that - with the absolute worst showing among the majors in two of those weeks - and has still been among the worst in four weeks out of the last seven.

There was no real downside per se this week, as all 30 of the key sectors finished in the black, as noted, although some were considerably weaker than their peers. The worst in that regard was petroleum refining, with a paltry 0.13% return. Ironically, the refiners had been among the best finishers the week before, when they rose 0.96%.

Other major sectors showing just mediocre results in an otherwise strong week included wholesale durable goods distributors (up 0.20%), automotive services (up 0.22%), lodging (up 0.30%), publishing (up 0.35%) and financial brokers and exchanges (up 0.36%).

The brokers and auto services - the latter chiefly vehicle-rental companies - have both been among the underachievers in two weeks out of the last three, and auto services has been there in six weeks out of the last eight. The publishers have had that unwanted honor in two weeks out of the last four, and the durable goods wholesalers in three out of the last four.

On the other hand, lodging, like refining, as noted, had been among the top finishers the week before, returning 1.02% that week.

Food stores first for year

On a year-to-date basis 27 weeks into 2011, bonds of the major-sized sectors have been strong, with 26 out of 30 showing cumulative returns of at least three full percentage points, unchanged from the previous week, including one above 8% year to date and nine above 6%, 10 more above 5% and six others topping 4%.

Bonds of food store operators held their cumulative lead with a year-to-date return of 8.14%, followed by depository financial institutions (up 6.53%) and electric and gas services (up 6.51%).

Bringing up the rear, publishing had a relatively modest 3.07% year-to-date return, followed by building construction (up 3.36%) and metals mining (up 3.77%).

Key indicator on comeback

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 gain as of Friday of 0.668%, its second consecutive weekly advance, on top of the 0.726% return in the week ended July 1, the biggest weekly upturn since early January, which broke a five-week losing streak before that.

The latest upturn lifted the index's year-to-date return to 5.784%, up from 5.082% the previous Friday, though still 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 102.827, a yield to worst of 7.14% and a spread to worst of 558 basis points over comparable Treasuries, versus a price of 102.290, a yield of 7.29% and a spread of 549 bps at the end of the previous week.

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