Advantage Data: Real estate rocked as major high-yield sectors slide

By Paul Deckelman

New York, Sept. 19 - The high-yield market was in the red last week for a second straight time and for the third time in the last four weeks. A majority of industry groupings showed losses, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

It was the 11th time this year that a majority of sectors ended on the downside, against 26 weeks in which upturns had been seen - although most of that lopsided positive breakdown reflects the tremendous strength seen early in the year, when there was week after week after week of improvements. Since the market's peak levels in late May, upturns and downturns have been more or less evenly matched, with a week or two of the one followed by one or two weeks or so of the other.

Of the 72 broad industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 44 finished in the red in the latest week, 23 sectors were in the black, one sector ended with a flat 0.00% reading, showing neither a gain nor a loss, and another four sectors did not show enough statistically meaningful activity to produce any kind of results.

That represented a continuation of the bearish pattern seen the previous week, which ended Sept. 9, when 38 sectors posted negative returns, 28 had positive results and one sector was unchanged. (Since then, Advantage Data has adjusted its high-yield universe, adding five sectors to bring the total number up to the present 72 from the previous 67.)

And in another confirmation of the prior week's pattern, 23 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, against just seven finishing in the black, extending the 20-to-10 negative breakdown seen the week before.

Among specific major sectors in the latest week, bonds of real estate, building construction and insurance companies showed the worst losses, while transportation equipment manufacturers, miscellaneous retailers and electronics manufacturers had the best performances.

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 for a second consecutive week, marking its third decline in the past four weeks. It also remains well below its peak level for the year.

Real estate leads retreat

Among specific significantly sized sectors, bonds of real estate companies had the worst showing with a 1.03% loss. It was a sharp comedown for the sector, which had been among the best finishers in each of the prior two weeks, although the volatile sector has also been among the worst performers now in two weeks out of the last four.

Also among the main underachievers in the latest week were building construction (down 0.94%), insurance carriers (down 0.87%), publishing (down 0.78%), financial brokers and exchanges (down 0.69%) and electric and gas services providers (down 0.66%).

It was the fifth straight week the publishers have had that unwanted distinction, and the grouping has now been among the worst finishers over nine weeks of the past 11 and 10 weeks of the last 14. Insurers have now been among the worst sectors in two weeks out of the last three.

Among the upsiders, transportation equipment manufacturers led the way among the largest sectors with a 0.57% gain, even though the grouping had been among the worst finishers the week before. However, it has now been among the elite performers in three weeks out of the last four.

Also showing notable strength in the latest week were miscellaneous retailers (up 0.25%), electronics manufacturers (up 0.12%), amusement companies (up 0.11%), oil and gas exploration and drilling companies (up 0.08%) and business services companies (up 0.04%)

It was the second straight week among the better performers for oil and gas, which has now been there in four weeks of the past five. The miscellaneous retailers have now been among the top finishers in two weeks out of the last three and in three weeks out of the last five.

Food stores hold first

On a year-to-date basis 37 weeks into 2011, bonds of the major-sized sectors have been moderately strong, with 22 out of 30 showing cumulative returns of at least three full percentage points, up from 21 sectors the week before. One sector was above 7%, and another topped 6%. The week before, one sector was above 8%, another above 7% and another above 6%. Three were above 5% last week, up one from the week before, while 11 exceeded 4% for a second straight week and six were above 3%, versus five the week before. For a sixth straight week, two sectors were in negative territory on a year-to-date basis.

Bonds of food store operators stayed on top in the latest week with a 7.67% return for the year so far. They were followed by electric and gas services at 6.76% and oil and gas companies at 5.89%. Precision instrument makers were up by 5.87%.

Bringing up the rear, building construction was losing 2.35% and publishing was down 1.58% year-to-date. Real estate showed a relatively modest 2011 return of 0.93%.

Key barometer stays down

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 0.297%, its second consecutive downturn, third in four weeks and sixth in the last eight weeks, reflecting the choppy and volatile nature of the market. The week before, the index had shown a 0.339% decline.

The latest loss left the index's year-to-date return at 1.651%, versus the previous Friday's 1.954%. It also remained well down from the 2011 peak level of 6.362%, set on July 26.

As of Friday, the index showed an average price of 97.160, a yield to worst of 8.56% and a spread to worst of 745 basis points over comparable Treasuries, versus a price of 97.615, a yield of 8.50% and a spread of 749 bps at the end of the previous week.

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