Advantage Data: Real estate rout rolls on, as major high-yield sectors slide again

By Paul Deckelman

New York, Sept. 26 - The high-yield market was in the red last week for a third consecutive time and for the fourth time in the last five 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 12th time this year that a majority of sectors ended on the downside, against 26 weeks of upturns, although most of that lopsided positive breakdown reflects the tremendous strength seen early in the year when there was 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 one followed by a week or two of the other.

Of the 72 broad industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 59 finished in the red in the latest week, 10 sectors were in the black and another three sectors did not show enough statistically meaningful activity to produce any kind of results.

That represented a continuation - and an intensification - of the bearish pattern seen the previous week, which ended Sept. 16, when 44 sectors posted negative returns, 23 had positive results, one sector ended with a flat 0.00% reading, showing neither a gain nor a loss, and four sectors did not show any results.

And in another confirmation of the prior week's pattern, 29 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.

That was against just one finishing in the black, extending and deepening the 23 to 7 negative breakdown seen the week before.

Among specific major sectors in the latest week, bonds of real estate, depository financial institutions and coal mining companies showed the worst losses, while food stores showed a gain.

Several other sectors, notably food manufacturers and building construction companies, posted relatively small losses for 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 for a third consecutive week and for the fourth time in the past five weeks, also ending at a new low for the year so far.

Real estate retreat continues

Among specific significantly sized sectors, bonds of real estate companies had the worst showing for a second consecutive week, plunging by 2.90%, on top of the previous week's 1.03% loss. The volatile sector - which had actually showed some strength in the weeks prior to that - has now been among the worst performers in three weeks out of the last five.

Also among the main underachievers in the latest week were depository financial institutions (down 2.65%), coal miners (down 3.23%), lodging (down 2.17%), metals mining (down 2.12%) and financial brokers and exchanges (down 1.72%).

It was the second straight week that the brokers and exchanges have had that unwanted distinction. Lodging now has been among the major losers in two weeks out of the last three and in four weeks out of the last six.

Among the upsiders, only food stores actually finished in the black, posting a 0.56% gain. The grouping has now been among the best finishers in two weeks out of the last three.

This week's roster of better-performing major sectors was filled out by several sectors suffering relatively smaller losses than the others. These included food manufacturing (down 0.18%), building construction (down 0.21%), precision instrument manufacturing (down 0.36%), machinery and computer manufacturing (down 0.38%) and transportation equipment manufacturing (down 0.43%).

The latter group also was among the better finishers the previous week. It was, in fact, the strongest of them that week with a 0.57% gain and now has been in that elite group in four weeks out of the last five.

The machinery and computer makers missed the cut in the week that ended Sept. 16 but have been among the best performers in two weeks out of the last three.

Food stores hold first

On a year-to-date basis 38 weeks into 2011, bonds of the major-sized sectors have been moderately strong, with 20 out of 30 showing cumulative returns of at least three full percentage points. That was down from 22 sectors the week before.

One sector was more than 8% and two others topped 6%. The week before, one sector had been more than 7% and another was more than 6%. One was more than 5% last week, down from three the week before, while five exceeded 4% and fully 11 were more than 3%, versus 11 above 4% for a second consecutive time in the previous week, and six over 3%.

The number of sectors in negative territory increased to three after six straight weeks of just a pair of key sectors in the red on a year-to-date basis.

Bonds of food store operators increased their lead in the latest week to an 8.06% return for the year so far. They were followed by precision instrument makers at 6.57%, electric and gas services at 6.10% and oil and gas exploration and production companies at 5.56%.

Bringing up the rear, building construction fell to a 2.82% loss, publishing was down 2.76% year to date, and real estate showed a 1.74% deficit for the year. Brokers and exchanges showed a relatively modest 2011 return of 0.29%.

Key barometer drops further

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 1.582%, its third consecutive downturn, fourth in five weeks and seventh in the last nine weeks.

These losses reflect the market's recent loss of the momentum it had generated during the first half of the year. It was one of the largest weekly losses of 2011. The week before, the index had shown a 0.297% decline.

The latest loss left the index's year-to-date return at 0.043%, versus the previous Friday's 1.651%.

This past Friday's cumulative return - its lowest point for this year so far - stood in stark contrast to the 2011 peak level of 6.362%, set on July 26.

As of Friday, the index showed an average price of 95.425, a yield to worst of 9.002% - the first time this year that a key metric moved more than 9% - and a spread to worst of 798 basis points over comparable Treasuries, versus a price of 97.160, a yield of 8.56% and a spread of 745 bps at the end of the previous week.

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