Advantage Data: Financials, auto services led major-sector surge last week; papermakers down

By Paul Deckelman

New York, Aug. 9 - The high-yield market posted its fifth consecutive strong gain in the week ended Friday, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

The week's results extended the powerful performances seen over each of the previous four weeks, dating back to July 9. The latest week's gains showed advancing sectors outpolling the losing sectors in seven weeks out of the last eight, and in nine weeks out of the last 11.

Sixty-eight of the 72 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the black in the latest week, with just four ending in the red. That extended the trend seen with the previous week's 71-to-1 positive blowout.

The last time more than 60 sectors were not on the upside was over a month ago, in the week ended July 2, when 49 of the sectors tallied had ended in negative territory, against 22 showing positive results and one sector unchanged, showing neither a gain nor a loss.

Out of 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, 28 showed gains in the latest week, with just two posting losses. That followed two weeks which saw all 30 of those sectors finish in the black versus none in the red.

The continued strength shown in the major sectors over the last five weeks stood in stark contrast to the weakness seen during the July 2 week, when 25 sectors had recorded losses against just five gains.

The biggest gainers in the latest week among those major sectors were the bonds of several different types of financial companies - insurance carriers and depository and non-depository institutions. Among the non-financials, automotive services did well, as did metals mining and transportation equipment manufacturing.

Only two of the significantly sized sectors ended in the red, as noted - paper manufacturers and lodging. Several other sectors, such as electronics manufacturing, food stores and health care, had only relatively modest returns in a generally strongly positive week.

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, hit a new high point for the year so far, its fifth straight weekly gain. The index has now been on the upswing in seven weeks out of the last eight.

Insurers on top

Among the specific significantly sized sectors, the single best finisher this past week was insurance carriers, which rose by 1.01%. It was the second straight week the insurers have been among the elite performers, including the week ended July 30, when they returned 1.58%.

Also showing strength were non-depository financial institutions and automotive services, which is chiefly vehicle rentals, (both up 0.99%), depository financial institutions (up 0.88%), metals mining (up 0.81%) and transportation equipment manufacturing (up 0.76%).

It was the second straight week among the big winners for the depository institutions, which in fact had been the strongest major sector the week before, when it was up 1.65%. Metals mining has now been among the top finishers in three straight weeks with gains of 0.97% and before that, 1.01%. But automotive services spent the previous week among the weakest performers with a return of 0.37%.

On the downside, paper manufacturing made the worst showing, down an even 1%. Lodging lost 0.10%. No other major sectors actually finished in the red this past week, although several had relatively anemic returns - electronics manufacturing (up just 0.10%), food stores (up 0.19%), health care (up 0.21%) and real estate (up 0.23%).

Health care was also among the laggards the previous week, with a meager 0.29% return - and the food stores group has now been among the bottom-dwellers in five straight weeks, including the July 30 week, when it was up only 0.33%.

Financials still 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 and have moved back up to around the peak levels seen earlier in the year - led by the bonds of this week's leader, insurance carriers (up 18.27%), depository financial institutions (up 15.32%), non-depository institutions (up 14.28%), brokers and exchanges (up 9.39%), investment and holding offices (up 8.90%) and real estate (up 8.88%).

Other notable cumulative gainers with 31 weeks now in the books and 21 to go, include metals mining (up 10.81%), electronics manufacturing (up 10.25%), transportation equipment manufacturing (up 10.08%), chemical manufacturing (up 9.97%), and amusement (up 9.79%).

No significantly sized sectors were in the red on a cumulative basis this past week. Food stores (up 3.63%), publishing (up 4.03%) and this week's big loser, paper manufacturing, (up 4.39%) had relatively modest year-to-date net advances.

Key market indicator hits new high

Looking at the overall domestic high-yield market, junk bonds, as measured by the Merrill Lynch High Yield Master II Index, showed a gain for a fifth consecutive week, and its year-to-date return pushed upward to a new high on Friday at 8.928%, versus the previous week-ending high for the year, 8.37%, seen on Friday, July 30, and the prior absolute 2010 peak level of 8.868%, seen this past Thursday.

The index gained 0.515% in the latest week. Its 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 99.143 at Friday's close, with a yield to worst of 8.16% and a spread to worst of 663 basis points over comparable Treasuries, versus a price of 98.661, a yield of 8.23% and a spread of 666 bps at the end of the previous week.

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