Advantage Data: Lodging, real estate led major-sector surge last week; brokers had slimmest return

By Paul Deckelman

New York, June 22 - The high-yield market rebounded in spectacular fashion in the week ended Friday from the previous week's sharp decline, according to industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc. That made three weeks out of the last four in which the count of advancing sectors outpolled losing sectors.

In an unusual show of overwhelming strength, all 71 of the broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black, with none in the red, in sharp contrast to the previous week, ended June 11, when the vast majority of the sectors (61) had been in negative territory against a relative handful (10) of positive finishers.

The turnaround was even more pronounced among the 30 most significantly sized sectors, as measured by the number of issuers, the collective number of issues and the total face amount of securities tracked; in contrast to the latest week's clean sweep to the upside, all of those sectors but one - coal mining - had shown losses in that previous week.

The biggest gainers in the latest week were the bonds of lodging, real estate, miscellaneous retailing and telecommunications companies.

With no sectors actually having finished in the red this past week, sectors showing unusually weak returns against the backdrop of a generally robust overall advance included financial brokers and exchanges, food stores, metals producers and wholesale durable goods distributors.

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, rose solidly on the week, versus falling readings at the end of the two previous weeks.

Lodging leads the way

While all of the major sectors ended in the black this week - and most notched gains of at least one full percentage point or higher - the single strongest finisher was lodging, which zoomed by 3.20%.

Other big gainers on the week included real estate (up 2.29%), miscellaneous retailing (up 1.99%), telecom (up 1.81%), non-depository financial institutions (up 1.76%), business services (up 1.68%) and insurance carriers (up 1.55%).

The latter group thus broke out of a deep rut, which had seen the insurers as the absolute worst performer among the significantly sized sectors in two out of the previous three weeks, including the June 11 week, when it dropped by 1.85%, and among the worst finishers in all three of the prior three weeks. Business services had also been among the worst laggards the week before, with a 1.24% loss.

As noted, no sectors actually finished in the red this past week.

Financial brokers and exchanges had the most anemic return among the major sectors, up just 0.19%. It was also one of the major losers the week before, when it was down 1.32%, and has been among the worst finishers now in three weeks out of the last four.

Other underperforming sectors in the latest week were food stores (up a modest 0.45%), metals production and wholesale durable goods (each up 0.54%), building construction (up 0.55%), precision instrument manufacturing (up 0.71%) and paper manufacturing (up 0.79%).

The latter group had also been among the worst performers the week before, with a 0.93% loss, although food stores and wholesale durables goods distributors had been among the best names that week, relatively speaking, with just small losses of 0.02% 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 - although they remain somewhat below their peak levels seen earlier in the year - led by insurance carriers (up 11.27%), depository financial institutions (up 10.89%), non-depository institutions (up 9.31%), investment and holding offices (up 8.29%), real estate (up 6.67%) and brokers and exchanges (up 4.46%).

Other notable cumulative gainers, with 24 weeks now in the books and 28 to go, include amusements (up 8.16%), transportation equipment manufacturing (up 6.15%), lodging (up 5.71%), metals mining (up 5.43%) and oil and gas drilling (up 4.86%).

After two major sectors tumbled into the red on a year-to-date basis in the June 11 week - the first time any had shown cumulative losses since late February - the past week's big advance lifted everybody back into the black for 2010 so far. Precision instrument manufacturers had the weakest yearly return (up 1.58%), followed by food stores (up 1.93%), business services (up 1.94%) and miscellaneous retailing (up 2.02%).

Key market indicator comes back

Looking at the overall domestic high-yield market, junk bonds, as measured by the Merrill Lynch High Yield Master II Index, rebounded smartly in the most recent week after having fallen for the two weeks before that.

The index was up by 1.817% on a one-week basis as of the close Friday to end the week with a year-to-date return of 4.645%, well up from 2.777% at the close the previous Friday, June 11.

However, the index remains considerably below 7.167%, the week-ending high for the year seen on April 30, and below 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 96.147 at Friday's close, with a yield to worst of 8.93% and a spread to worst of 688 basis points over comparable Treasuries - versus a price of 94.552, a yield of 9.38% and a spread of 726 bps at the end of the previous week.

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