Advantage Data: Lodging, real estate bonds perform worst on week; food stores had smallest loss

By Paul Deckelman

New York, May 24 - The high-yield market finally saw its bubble burst in the week ended Friday, according to statistics supplied to Prospect News by Advantage Data Inc., as junk industry sector returns finished on the downside for the first time since the week ended Feb. 12.

The decline broke a dazzling 13-week winning streak that had included strongly positive gains in the previous week, ended May 14. Except for a four-week period between mid-January and mid-February, plus the latest week, the sector returns have been predominantly to the upside since the beginning of the year.

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 companies in lodging, real estate, business services and some retailers had the absolute worst showings on the week, while food store operators and manufacturers of precision instruments managed to get by with relatively small losses.

Of the 72 broad-industry sectors into which Advantage Data currently divides its entire high-yield universe, 65 had negative returns on the week and just seven had positive results, versus the week before, when 60 sectors had finished in the black while 12 were in the red.

All 30 of the significantly sized sectors ended in negative territory in the latest week, with none showing positive returns, in stark contrast to the previous week, when 27 sectors had finished in the black, with just three in the red.

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, slid badly from the previous week's finish, the second time in three weeks in which that has happened.

Lodging the biggest loser

Lodging was the single worst performer among the significantly sized sectors with a 4.02% plunge, followed by real estate, which dropped by 3.81% - a far cry from the week before, when real estate had, in fact, been the best-performing major sector, with a 1.85% gain, and lodging was not far behind, up 1.51% in that week ended May 14.

Other major-sector big losers in the latest week included business services (down 2.82%), miscellaneous retailing (down 2.70%), automotive services, chiefly vehicle rentals (down 2.59%), publishing (down 2.56%) and amusements (down 2.49%). The latter sector had also been among the worst finishers the week before, when it was down 0.44%. Miscellaneous retailing, on the other hand, had been one of the prior week's better finishers (up 0.92%).

With all 30 of the major sectors finishing in the red this past week, as mentioned, there was no upside per se. However, some sectors had limited losses, including food stores (down 0.33%), manufacturers of precision instruments, chiefly medical devices (down 0.35%), depository financial institutions (down 1.02%), coal mining (down 1.06%), chemical manufacturing (down 1.07%) and financial brokers and exchanges (down 1.12%).

The chemical makers had also been among the best finishers the week before, with a 0.87% gain, while food stores, precision instrument makers and financial brokers and exchanges had been among the worst that week - when almost all sectors finished in the black - with relatively modest gains of 0.10%, 0.11% and 0.03%, respectively.

Financials top yearly results

On a year-to-date basis so far, financial sectors for the most part continue to show the strongest performance among the significantly sized sectors, led by insurance carriers (up 13.25%), depository institutions (up 11.10%), investment and holding offices (up 7.36%), non-depository institutions (up 7.33%) and brokers and exchanges (up 7.31%).

Other big cumulative gainers, with 20 weeks now in the books and 32 to go, include amusements (up 6.38%), wholesale durable goods distributors (up 4.99%), chemical makers (up 4.79%), transportation equipment manufacturing (up 4.44%) and makers of machinery and computers (up 4.24%).

Despite the sharp slide in the overall market this past week, no major sector was yet in the red on a year-to-date basis. Cumulative returns for miscellaneous retailing (up just 0.57%), electric and gas services (up 1.45%), food stores (up 1.79%), publishing (up 1.88%) and precision instruments makers (up 2.24%) lagged behind all of the other major sectors.

Key market indicator gets clobbered

Looking at the overall domestic high-yield market, junk bonds, as measured by the Merrill Lynch High Yield Master II Index, suffered their second steep drop in three weeks, posting a 2.001% one-week fall as of the close on Friday to end the week with a year-to-date return of 3.115%.

The level was well down from 5.22% year-to-date performance at the close of the previous Friday, when the index had risen from the prior week's level, and down further still from 7.167%, the week-ending high for the year seen on April 30, and from the absolute 2010 peak level of 7.18%, seen earlier that same week.

The index's low for the year was a 0.357% loss recorded the week ended Feb. 12.

The average price of a high-yield issue covered by the Master II stood at 95.348 at Friday's close, with a yield to worst of 9.12% and a spread to worst of 706 basis points over comparable Treasuries - versus a price of 97.505, a yield of 8.57% and a spread of 642 bps at the end of the previous week.

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