Advantage Data: Real estate tops as major junk sectors snap seven-week losing streak

By Paul Deckelman

New York, July 8 - The high-yield market enjoyed its first upside week in nearly two months in the period ended Friday, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Junk managed to pull out of the seven-week nosedive that had begun during the week ended May 17. That long skid, in turn, had snapped a winning streak of 13 consecutive weeks before that in which junk had shown gains, dating back to the week ended Feb. 15, when it had broken out of a two-week slump.

The advance in the latest week marked the 18th gain that the junk market has seen so far this year, against nine weekly losses for 2013. Aside from the recent cluster of consecutive weekly losses, the other downturns had occurred back to back in the weeks ended Feb. 1 and Feb. 8.

On a longer-term basis, last week marked the 25th gain in the last 37 weeks, versus 12 losses during that time. Besides the 13-week winning streak earlier in the year, a 10-week stretch of consecutive weekly gains between last November and the week ended Jan. 25 also helped to account for much of those gains over that longer period.

In the latest week, 43 of the broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black, while 22 ended in the red. While not a complete rout, it was a definitive turnaround from the results seen the week before, ended June 28, when 52 of the sectors showed losses and 13 posted gains.

The overall market's breakout after seven straight weeks on the downside was also reflected in the behavior 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 outstanding. Some 19 of those larger sectors ended in the black this past week, against 11 finishing in the red. As in the case of the overall sector count, that represented a solid, though not overwhelming bounce-back from the previous week, when 25 of those key sectors had shown losses and just five had posted gains.

Among specific major sectors in the latest week, bonds of real estate operators, depository financial institutions and financial brokers and dealers had the best showings, while coal-mining concerns and precision instrument manufacturers did the worst.

Statistical indicators of general market performance remained mixed on the week; despite the signs of strength elsewhere in the market, the total year-to-date return as measured by the widely followed Merrill Lynch High Yield Master II index still showed its eighth consecutive weekly loss.

Index retreat continues

The Merrill Lynch index showed junk bonds having eased by 0.006% for the week as of the close Friday, versus its 0.118% loss the week before. The index has now seen 16 gains so far in 2013 against 11 losses. It had finished 2012 with 40 weekly gains versus 12 weekly losses.

As of Friday, the index's year-to-date return stood at 1.455%, down slightly from 1.46% at the end of the previous week. It remained well down from its peak level for the year so far of 5.835%, recorded on May 9, though up solidly from its 2013 low point of 0.384%, set on June 25. The index had finished 2012 with a cumulative return of 15.583%, just a little below its peak for the year of 15.589%.

Among its other components, the index showed an average price of 101.323 on Friday, down from 101.533 a week earlier.

Its yield to worst stood at 6.638%, up from 6.556% a week earlier. It was down from a high point for the year of 6.853%, set on June 25, though still well above its low yield for the year of 4.986% on May 9 - the lowest all-time yield as well.

However, aided by a sharp sell-off in U.S. government debt last week, accompanied by a steep rise in yields on that federal paper, the junk index's spread to worst over comparable Treasury issues tightened to 509 basis points from 521 bps the week before, and had narrowed as well from its 2013 wide point of the year of 536 bps, also set June 25. Its tightest level for the year so far has been 427 bps over Treasuries, also set on May 9.

Financials lead the firming

Back on a sector basis, Advantage Data meanwhile showed the bonds of several financial sectors doing the best among the significantly sized junk market groupings.

Real estate led the way with a 0.64% gain, followed by two other financials - depository institutions (up 0.27%) and securities and commodity brokers, dealers and exchanges (up 0.24%). It was the second straight week among the better finishers for the depository financials, having also been there in the week ended June 28 with a 0.14% gain.

Rounding out the week's Top Five best performers were amusement services (up 0.21%) and business services (up 0.18%). Amusements marked their third consecutive week among the elite finishers, having also been there the previous week with a 0.09% gain.

On the downside, coal-mining companies suffered the biggest loss of any of the significantly sized sectors as they slid by 0.79% in the week ended Friday. It was the miners' fourth consecutive week of having the worst showing of any major sector, including the previous week's plunge of 1.30%, and their fifth straight week among the Bottom Five worst performers among those major sectors.

Other key sectors showing sizable losses in the latest week included precision instrument manufacturing (down 0.52%), paper manufacturing (down 0.31%), non-depository credit institutions (down 0.26%) and lodging (down 0.19%).

It was the precision instrument manufacturers' second straight week among the worst finishers, having also been there the week before with a 0.83% loss. However lodging had actually been the best performer among all of the significantly sized sectors the previous week, when it was up by 0.64%, while the non-depository credit institutions had been among the best finishers for a fourth straight week during that previous week, when they had been up by 0.12%.

Food stores firmest for year

At just over the half-way point for the year, twenty-seven weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 25th straight week, posting a cumulative return of 15.56%. It remained the first, and so far the only, major sector to hit double digits on a percentage basis this year.

The grocers were followed by publishing and printing, which jumped to second-best from fourth the week before, with a 4.99% return for the year. That improvement, in turn, pushed non-computer electronics manufacturing down one notch, from second-best to third, with a 4.72% year-to-date return, and likewise lowered the insurance carriers by one slot, from third-best to fourth, with a 4.47% return. Lodging (up 3.58%) remained fifth-best on the year for a second straight week.

Among the year-to-date underachievers, coal mining's cumulative loss remained in the red for a third consecutive week (down 5.44%), with the sector continuing to be hurt badly by its recent string of big weekly losses, as noted. It was coal's fourth straight week on the bottom among the significantly sized sectors on a cumulative return basis.

Metals miners (down 0.49%) also stayed in the red, the sector's second consecutive week in negative territory and its third straight week of having the second-worst return of any key sector. Electric and gas utilities were a little better (up 0.49%), although they were third-worst among the larger sectors for a fourth straight week.

Telecommunications (up 1.17%) fell one notch, to fourth-worst, after three straight weeks of having been the fifth-worst sector. The new Number 5, chemical manufacturing (up 1.24% on the year) had not been among the worst year-to-date performers the previous week.

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