Advantage Data: Lodging, real estate best as major junk sectors gain

By Paul Deckelman

New York, Sept. 3 - The high-yield market broke out of its recent rut during the week ended Friday, posting its first gain after two consecutive losses - only the second upturn in the last six weeks, according to sector-tabulated bond-performance statistics supplied to Prospect News on Tuesday by Advantage Data Inc.

Demonstrating the recent choppy pattern in the junk market, the latest gain partially offset losses seen in the weeks ended Aug. 16 and Aug. 23. Those downturns, meanwhile, reversed an advance seen the week before that, ended Aug. 9, which had snapped a two-week losing streak in the weeks ended July 26 and Aug. 2.

Going back a little further, those setbacks, in turn, had halted an earlier market rebound, when junk posted gains over the previous three weeks, dating back to the holiday-shortened week ended July 5. And those July advances had ended a seven-week nosedive dating back to the week ended May 17 and running all the way up through the week ended June 28.

The gain in the latest week marked the 22nd weekly improvement that the junk market has seen so far this year, against 13 weekly setbacks. Aside from the recent clusters of consecutive weekly losses, the other two downturns recorded this year had occurred back-to-back in the weeks ended Feb. 1 and Feb. 8. On the upside, besides the gains posted lately, the market had seen a surge of 13 consecutive weeks between mid-February and mid-May, and earlier had opened 2013 with four straight advances, part of a 10-week surge that had started in late November of last year.

In the latest week, 48 of the 59 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black, while 11ended in the red. That represented a clear reversal of the negative breakdown seen in the previous week, when 49 sectors showed losses, seven showed gains and two more were unchanged on the week. In the interim, Advantage Data recalculated and slightly expanded its sector roster.

The turnaround from the previous week's negative trend 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, 29 of those larger sectors showed gains, against only one loss, versus the week before, when 26 of the 30 sectors ended in the red, with just three sectors finishing in the black and one sector - non-depository credit institutions - ending the week unchanged

Among specific major sectors in the latest week, bonds of lodging providers and real estate companies turned in the best showing, while building construction was the sole significantly-sized sector suffering a loss on the week.

Statistical indicators of general market performance were mixed for a second consecutive week, after previously breaking a skid of four straight weeks in which they had been negative across the board. Among the market measures doing better this past week was the total year-to-date return as measured by the widely followed Merrill Lynch High Yield Master II Index - breaking out of a five-week slump.

Index turns northward

The Merrill Lynch index showed junk bonds having risen by 0.282% for the week as of the close Friday, following the previous week's 0.339% retreat, which had been its fifth straight weekly loss, dating back to the week ended July 26. Those losses had followed advances the two weeks before that, ended July 12 and July 19. Those improvements, in turn, had broken a skid of eight straight weekly losses before that dating back to the week ended May 17.

The index has now seen 19 gains so far in 2013 against 16 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 2.768%, up from 2.478% 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 still up 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 101.566 on Friday, up from 101.417 a week earlier.

Its yield-to-worst stood at 6.322%, down from 6.355% 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.

However, its spread to worst over comparable Treasury issues widened slightly to 486 basis points from 484 bps the week before. The spread continued 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, real estate lead

Back on a sector basis, Advantage Data meanwhile showed the bonds of lodging providers and real estate companies having each done the best among the significantly-sized junk market groupings, both improving by 0.46% on the week.

Also showing strength were food stores (up 0.42%), business services (up 0.36%) and metals mining (up 0.33%). It was the fourth consecutive week for the miners among the Top Five strongest finishers; they had also been there the previous week with a 0.11% gain.

On the downside, only the bonds of building construction companies (down 0.06%) ended the week actually in the red.

Filling out the latest week's Bottom Five list of underachievers were several sectors which showed considerably smaller gains than most, including food manufacturing (up 0.03%), wholesale durable goods distributors (up 0.04%) and the insurance carriers and non-computer electronics manufacturers (each up just 0.06%).

It was the fourth consecutive week that the electronics manufacturers finished among the weakest performers, having also been there the previous week with a 0.55% loss.

Food stores still ahead

Thirty-five weeks into 2013, the food stores sector remained the clear leader among the key sectors on a year-to-date basis for a 33rd straight week, posting a cumulative return of 12.63%. It remained the first, and so far the only major sector to hit double digits on a percentage basis this year.

Among the other year-to-date leaders, amusement and recreation services moved up to second-best with a 6.51% gain on the year so far, after having been only fifth best for a second straight time last week. The electronics manufacturers (up 6.38%) moved up one notch, to third best, after having been just fourth best for a second straight week before, switching positions with the insurance carriers (up 5.89%). The insurers slipped down to fourth place after having spent the previous week as third best for a third straight week. Lodging (up 5.63%) - which had not been among the year-to-date leaders the previous week - moved up to fifth place, on the strength of its robust performance in the latest week.

On the downside, coal mining (down 1.84%) remained the worst among the significantly-sized sectors for a 12th straight week and also stayed in the red zone on the year for a fourth consecutive time. Coal was again the only sector in the red for the year this week.

Electric and gas utilities, with an anemic 1.94% return, were second-worst on the year for a fifth consecutive week.

Also among the underachievers for the year were building construction (up just 2.19%), which slipped to third worst from fifth worst the week before. Metals mining (up 2.72%), the previous week's third worst 2013 performer, improved by one position to just fourth worst. Telecommunications (up 2.78%) also improved by one slot, to only fifth worst, from the previous week's fourth-worst finish.

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