Advantage Data: Electronics, lodging led major-sector retreat last week, depository financials up

By Paul Deckelman

New York, Aug. 16 - The high-yield market was in retreat during the week ended Friday, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

The decline broke a string of five consecutive gains dating back to the week ended July 9 and including the previous week, ended Aug. 6. However, advancing sectors have still outpolled the losing sectors in seven weeks out of the last nine and in nine weeks out of the last 12.

Forty-nine of the 72 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe finished in the red in the latest week, with 23 ending in the black. That reversed the trend seen in the previous week's overwhelming 68-to-four positive blowout, and similarly lopsided breakdowns in the four weeks before that.

The latest week marked the first time that more than 60 sectors were not on the upside since 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, 27 showed losses in the latest week, with just three posting gains, almost a perfect reversal of the week before, when 28 of the sectors ended in the black and just two finished in the red.

The biggest decliners in the latest week among those major sectors were the bonds of electronics manufacturers, lodging and amusement companies, miscellaneous retailers and non-depository financial institutions. Only three of the significantly sized sectors ended in the black, as noted - depository financial institutions, food stores and building construction. Several other sectors, such as insurance carriers and financial brokers and exchanges, had only relatively small losses despite a generally bearish 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, retreated from its highs for the year for the first time in six weeks.

Electronics makers zapped

Among the specific significantly sized sectors, the single worst finisher this past week was electronics manufacturing, which lost 1.19%. The group was also among the laggards in the Aug. 6 week, when it had a paltry 0.10% return.

Also showing particular weakness this time around were lodging (down 1.07%), amusement (down 0.91%), miscellaneous retailing (down 0.89%), non-depository financials (down 0.81%) and the health care, chemical manufacturing and petroleum refining sectors, all down 0.76% on the week.

Lodging has now been among the weak finishers twice in a row, and health care three straight times, although the non-depository financials had been among the best finishers the previous week, when they saw a gain of 0.99%.

On the upside, depository financials returned 0.37%, the best among the major sectors, with food stores up 0.24% and building construction up 0.09%. They were the only key sectors finishing in the black.

Other sectors showing relatively small losses included insurance carriers (down 0.04%), financial brokers and exchanges (down 0.10%) and metals processing (down 0.14%).

It was the third straight week among the better finishers for the insurers, and a big rebound for the food stores, which had been among the worst-performing sectors for the previous five weeks, including the Aug. 6 week, when it had a meager 0.19% gain in a mostly bullish week.

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 insurance carriers (up 19.39%), depository financial institutions (up 15.81%), non-depository institutions (up 12.33%), brokers and exchanges (up 9.67%), investment and holding offices (up 9.24%) and real estate (up 8.95%).

Other notable cumulative gainers with 32 weeks now in the books and 20 to go, include transportation equipment manufacturing (up 10.14%), metals mining (up 10.13%), electronics manufacturing (up 9.55%), amusement (up 9.30%) and chemical manufacturing (up 9.02%).

No significantly sized sectors were in the red on a cumulative basis this past week. Publishing (up 3.82%), food stores (up 3.91%) and automotive services (up 4.79%) had relatively modest year-to-date net advances.

Key market indicator backs off

Looking at the overall domestic high-yield market, junk bonds, as measured by the Merrill Lynch High Yield Master II Index, showed a decline for the first time after five straight weeks of gains dating back to early July.

The index's year-to-date return as of Friday stood at 8.259% - down from 8.928% at the end of the previous week, and down further still from its peak level for the year so far, 9.085%, recorded last Monday. The index lost 0.615% in the latest week. However, it remained well above its low for the year, a 0.357% loss recorded in the week ended Feb. 12.

The average price of a high-yield issue covered by the Master II stood at 98.361 at Friday's close, with a yield to worst of 8.39% and a spread to worst of 691 basis points over comparable Treasuries, versus a price of 99.143, a yield of 8.16% and a spread of 663 bps at the end of the previous week.

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