Advantage Data: Lodging, insurers, real estate do best as major junk sectors snap losing streak

By Paul Deckelman

New York, Aug. 12 - The high-yield market saw an upturn during the week ended Friday - breaking a two-week losing skid, according to sector-tabulated bond-performance statistics supplied to Prospect News on Monday by Advantage Data Inc.

Those back-to-back declines in the weeks ended July 26 and Aug. 2 had brought to at least a temporary halt an earlier market rebound, which had seen junk post gains over the previous three weeks, dating back to the holiday-shortened week ended July 5. Those advances, in turn, had ended a seven-week nosedive from the week ended May 17 through the week ended June 28.

The gain in the latest week marked the 21st weekly advance that the junk market has seen so far this year, against 11 weekly setbacks.

Aside from the recent clusters of consecutive weekly losses, the other downturns had occurred back to back in the weeks ended Feb. 1 and Feb. 8. On the upside, besides the recent gains, the market had seen a surge of 13 consecutive weeks between mid-February and mid-May, and earlier had opened 2013 with four consecutive advances, part of a 10-week surge that had started in late November of last year.

In the latest week, 42 of the 57 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black, while 15 ended in the red. That represented a clear departure from the negative pattern seen in the previous week, ended Aug. 2, when 31sectors showed losses, 27 had posted gains and one sector was unchanged on the week. In the interim, Advantage Data recalculated and slightly trimmed the roster of sectors it follows.

The comeback from the previous week's losing breakdown 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. In the week ended Friday, 19 of the 30 sectors showed gains, against 11 losses. The week before, 15of those larger sectors had ended in the red, with 14 finishing in the black, and the one unchanged sector - insurance carriers.

Among specific major sectors in the latest week, bonds of lodging providers, insurance carriers and real estate operators had the best showings, while paper from the coal mining and automotive services sectors suffered the worst losses.

Statistical indicators of general market performance were negative across the board for a third consecutive week, including the total year-to-date return as measured by the widely followed Merrill Lynch High Yield Master II index.

Index remains lower

The Merrill Lynch index showed junk bonds having lost 0.097% for the week as of the close Friday, following the previous week's 0.193% retreat. The market measure's third straight weekly loss had followed two previous straight consecutive gains in July, which in turn had broken a skid of eight straight weekly losses before that dating back to May 17.

The index has now seen 18 gains so far in 2013 against 14 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 3.165%, down from 3.266% at the end of the previous week.

The cumulative return 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 102.399 on Friday, down from 102.646 a week earlier.

Its yield to worst stood at 6.175%, up from 6.128% a week earlier. While having come in from its high point for the year of 6.853%, set on June 25, it remained still well above its low yield for the year of 4.986% on May 9 - which was also the lowest all-time yield as well.

The index's spread to worst over comparable Treasury issues widened to 489 basis points from 484 bps the week before, continuing to steer a course in between its 2013 wide point of the year of 536 bps, set June 25, and its tightest level for the year so far of 427 bps over Treasuries, set on May 9.

Lodging leads the way

Back on a sector basis, Advantage Data meanwhile showed the bonds of lodging companies having done the best among the significantly sized junk market groupings, gaining 0.52% on the week.

Other sectors showing relative strength included insurance carriers (up 0.43%), real estate (up 0.42%), metals mining (up 0.22%) and food stores (up 0.20%).

The week before, the insurers, as noted, had been unchanged, with the sector's 0.00% return indicating neither a gain nor a loss. But metals mining had been among the worst performers in that previous week, with a 0.36% loss.

On the downside, coal mining was the single worst-performing major sector, plunging 1.48%. It was coal's third consecutive week at the very bottom of the pile, having also notched index-worst declines of 0.81% in the week ended Aug. 2 and 0.46% in the week ended July 26.

Other underachievers for the week included automotive services (down 0.47%), non-computer electronics manufacturing (down 0.20%), telecommunications (down 0.19%) and chemical manufacturing (down 0.16%). None of those other downside sectors had been among either the Top Five best performers or the Bottom Five worst finishers the week before.

Food stores firmest for year

Thirty-two weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 30th straight week, posting a cumulative return of 11.90%. It remained the first, and so far the only major sector to hit double digits on a percentage basis this year.

The grocers were immediately followed by publishing and printing (up 7.68% on the year). The sector had moved up two positions, to second-best, after having been just fourth-best over the two previous weeks. Insurance carriers were third-best on the year (up 6.43%), falling by one slot after having been second-best over the two previous weeks.

Amusement and recreation services (up 5.97% on the year) moved up one position, to fourth-best from fifth, while the new Number-Five finisher - lodging (up 5.73%, helped by its strong performance on the week), had not been among the year-to-date leaders the week before.

Among the underachievers for 2013 so far, coal mining remained the weakest among the significantly sized sectors for a ninth straight week, tumbling into the red the red zone for the year (a 0.80% cumulative loss); before that, it had been in the black for three straight weeks, and had shown a loss for the year over the four weeks before that, dating back to mid-May.

Coal was the only sector in the red for the year this week. Electric and gas utilities were second-worst for a second consecutive week, with a 2.18% return, while primary metals processing fell to third-worst, with a 2.97% return, down from just fourth-worst the week before.

The new fourth-worst year-to-date sector, building construction (up 3.03%), and fifth-worst, telecommunications (up 3.07%), had not been among the worst year-to-date performers the previous week.

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