Advantage Data: Real estate, retailers led key junk sector rebound last week; HY index battles back

By Paul Deckelman

New York, Feb. 22 - The high-yield market convincingly broke out of its recent funk in the week ended Friday, according to statistics supplied to Prospect News by Advantage Data Inc., as junk industry sector returns snapped a four-week losing streak and the market came off the lows to which it had slid the week before, ended Feb. 12.

Those four previous weeks had represented a shocking contrast to the pattern of strength seen before that - a 10-week winning streak that dated from mid-November through mid-January.

Looking at a longer timeframe, there still have been only seven downturns in the last 26 weeks and eight in the last 32 - but it remains to be seen whether last week's big rebound represents another major momentum change, or whether it was just a one-off event.

In the latest week, among the more significantly sized broad-industry sectors - as measured by the number of issuers, the collective number of issues and the total face amount of securities tracked - bonds of real estate operators and miscellaneous retailers led the surge, each posting sizzling returns for the week of more than 3%, while metals mining, lodging, business services and electronics manufacturing also showed strength with returns north of 2%.

With all sizable sectors back in the black, bonds of precision equipment and transportation equipment makers, as well as wholesale durable goods distributors, construction companies and financial brokers and exchanges had the weakest returns.

Of the 71 broad-industry sectors into which Boston-based Advantage Data currently divides its high-yield universe, 65 had positive returns and only six had negative results on the week - a sharp reversal of the trend seen in the previous week, when 62 sectors had finished in the red and just nine were in the black.

All 30 of the significantly sized sectors had positive returns in the latest week, with none in negative territory as noted - an exact, mirror-image flip-flop of the 30-0 negative clean sweep seen the week before.

On a statistical basis, the junk market's year-to-date performance, as measured by the widely followed Merrill Lynch High Yield Master II index, turned higher after four consecutive weeks on the downside, and got back in the black after having fallen into the red the previous week for the first time this year.

Real estate, retail lead rally

The best-performing major sector on the week was real estate, which soared 3.58% on the week - a solid comeback from the weakness seen the previous week, when it was down by 1.70%, and the week before that, ended Feb. 5, when it was off by 0.67%, landing it among the worst performers in each of those weeks.

It was ditto for miscellaneous retailing, which jumped 3.46%, after having lost 1.75% the week before and having also been among the worst laggards in the two weeks before that.

Other big gainers among the sizable sectors in the latest week included metals mining (up 2.57%), lodging (up 2.30%) business services (up 2.20%) and electronics manufacturing (up 2.03%).

A number of other major sectors had returns north of 1%.

Lodging, business services and electronics manufacturing had all been among the worst finishers the week before, with losses of 1.42%, 1.28% and 1.22%, respectively. Metals mining, on the other hand, had only lost 0.40% the week before - making it, relatively speaking, one of the stronger names that week.

Weakest finishers

On the downside, all 30 major sectors, as noted, finished in the black last week, although the weaker areas included precision instrument manufacturing (up just 0.23%), transportation equipment manufacturing (up 0.27%), wholesale durable goods distributors (up 0.28%) and financial brokers and exchanges and building construction (each up only 0.35%).

The week before, the transportation equipment manufacturers had actually been the best among the major sectors, losing just 0.11%, with building construction (down 0.24%) and wholesale durable goods companies (down 0.41%) also showing relatively small losses.

Financials top yearly results

On a year-to-date basis so far, financial sectors continue to show the strongest performance among the significantly sized sectors, led by non-depositary institutions (up 4.85%), depositary institutions (up 4.60%) and insurance carriers (up 4.39%), followed by brokers and exchanges (up 3.75%), and investment and holding offices (up 2.48%).

Other big cumulative gainers, with seven weeks now in the books and 45 to go, include metals mining (up 2.61%), building construction (up 1.81%), transportation equipment makers (up 1.64%) and food manufacturers (up 1.57%).

Almost all of the roughly one dozen major sectors which had fallen into the red by the end of the Feb. 12 week shriveled to just one in the latest week - real estate (down 0.11%). Miscellaneous retailing got back in the black (up 0.01%). Other weak 2010 performers, so far, included publishing (up 0.04%), telecommunications (up 0.07%), food stores (up 0.13%) and petroleum refining (up 0.17%).

Key market indicator gets the red out

Looking at the overall domestic high-yield market, junk bonds, as measured by the Merrill Lynch High Yield Master II Index, made a robust comeback in the latest week, notching a sterling 1.499% one-week gain as of the close on Friday to end the week with a year-to-date return of 1.137%.

That not only snapped a four-week downside slide, as noted, but it lifted the index back up into the black, versus the 0.357% loss to which the index had fallen in the week ended Feb. 12. However, while up from that nadir, the index remains well below its peak level for 2010 so far, 2.292%, notched on Jan. 14.

The average price of a high-yield issue covered by the Master II stood at 95.408 at Friday's close, with a spread to worst of 662.554 basis points over comparable Treasuries and a yield to worst of 9.027% - versus a price of 94.125, a spread of 703.608 bps and a yield of 9.41% at the end of the previous week.

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