Advantage Data: Lodging, publishing, real estate led renewed key-sector plunge last week

By Paul Deckelman

New York, Aug. 29 - The high-yield market was back on the slide last week, as a majority of industry groupings - particularly the most significantly sized - nosedived for the third time in the past four weeks, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

It was the ninth week this year in which high yield has ended on the downside, against 25 weeks of upturns, but that lopsided breakdown mostly reflects tremendous strength early in the year, featuring week after week after week of improvements. More recently, since the market's peak upside levels in May, a week or two of downturns has more or less alternated with a similar number of upturns.

Some 60 of the 72 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 seven sectors in the black and another five sectors showing not enough statistically meaningful activity to produce any kind of results.

That represented a sharp comedown from the bullish pattern seen the previous week, ended Aug. 19, when 42 sectors posted positive returns, 25 had negative results and the other five showed no results.

All 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 during the week, against none finishing in the black - reversing the trend seen the week before, when 20 of the 30 sectors showed positive returns and 10 of them had negative results.

Among specific major sectors in the latest week, bonds of lodging, publishing and real estate companies suffered the biggest losses, while non-depository financial institutions led a handful of sectors showing just relatively small losses on the week.

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 in the latest week, reversing the previous week's advance, and has now been on the downside in four weeks out of the last five. It remains well below its peak level for the year.

Lodging the biggest loser

Among specific significantly sized sectors, bonds of lodging providers showed the biggest loss, down 2.23% on the week. It was the second straight week among the big losers for the sector.

Also among the worst underachievers were publishing (down 1.83%), real estate (down 1.74%), financial brokers and exchanges (down 1.56%), building construction (down 1.45%) and petroleum refining (down 1.40%). The refiners had actually been among the top finishers in the week ended Aug. 12. Publishing, on the other hand, was among the weakest sectors in the previous week and has now had that unwanted honor for two straight weeks, in six weeks out of the last eight and seven weeks out of the last 11.

For the second time in three weeks, there was no upside, per se, as all significantly sized sectors finished in the red. However, among those groupings, non-depository financial institutions ended with a relatively tame 0.19% loss. The sector had been among the worst finishers the week before.

Other sectors showing relatively restrained losses included coal mining (down 0.35%), oil and gas exploration and production (down 0.36%), depository financial institutions (down 0.37%), and the electronics manufacturing and transportation equipment manufacturing sectors (both down 0.43%). It was the second straight week among the relatively better-performing sectors for the coal miners and the oil and gas drillers.

Utilities take first place

On a year-to-date basis 34 weeks into 2011, bonds of the major-sized sectors have been moderately strong, with 18 out of 30 showing cumulative returns of at least three full percentage points, although that was down from 22 sectors at 3% or above year to date, posted the week before. Three topped 6%, versus one above 7% and two over 6% in the previous week, two were above 5%, two exceeded 4% and 11 returned more than 3%. For a third straight week, two sectors were in negative territory on a year-to-date basis.

Bonds of electric and gas services providers had the best year-to-date return, at 6.26%, followed by precision instrument manufacturers (up 6.11%) and the previous cumulative leader, food stores (up 6.06%).

Bringing up the rear, building construction was down 1.87% year to date and publishing was losing 1.84%. Real estate showed just a modest 0.35% year-to-date return.

Key indicator down again

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 1.721%, the fourth such retreat recorded in the past five weeks, reversing the 0.421% upturn seen in the previous week, ended Aug. 19, which had broken a three-week losing streak.

The latest gain dropped the index's year-to-date return to 0.719%, down from the previous Friday's 1.751%. The cumulative return also remained well down from the 2011 peak level of 6.362%, set on July 26.

As of this past Friday, the index showed an average price of 96.797, a yield to worst of 8.66% and a spread to worst of 743 basis points over comparable Treasuries, versus a price of 97.927, a yield of 8.38% and a spread of 730 bps at the end of the previous week.

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