Advantage Data: Auto services skid as major high-yield sectors slide again

By Paul Deckelman

New York, Oct. 11 - The high-yield market was in the red last week for a fifth consecutive time and for the sixth time in the last seven weeks as a majority of industry groupings showed losses, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

It was the 14th time this year that a majority of sectors ended on the downside, against 26 weeks of upturns - although most of that lopsided positive breakdown reflects the tremendous strength seen early in the year when there was week-after-week of improvements.

After the market's peak levels in late May, upturns and downturns were evenly matched for a time with a week or two of one, followed by a week or two of the other. However, things have turned decidedly negative lately.

Of the 71 broad industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 43 finished in the red in the latest week, 25 sectors were in the black, one was unchanged on the week, showing neither a gain nor a loss, and another two sectors did not show enough statistically meaningful activity to produce any kind of results.

While still definitely negative, that did represent a modification of the bearish pattern seen the previous week, which ended Sept. 30, when 66 sectors posted negative returns, only two had positive results and three sectors did not show any results.

And in another softening of the prior week's harsh pattern, 21 of the 30 most significantly sized sectors - as measured by the number of bond issuers, the collective number of issues tracked and their total face amount - ended in the red this week, eight were in the black, and one - coal mining - had a perfectly flat reading.

That was a moderate improvement from the week before, when all 30 key sectors had negative results and none were positive. The coal miners had been among the worst finishers for a second consecutive time in that previous week.

Among specific major sectors in the latest week, bonds of automotive services providers, food store operators and depository financial institutions showed the worst losses.

On the upside, real estate, financial brokers and exchanges and metals mining companies - all recently hard-hit - had solid gains this past week.

Among statistical indicators, the junk market's total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, fell for a fifth consecutive week and for the sixth time in the past seven weeks, remaining in the red on the year for a second consecutive week.

Auto services on the slide

Bonds of automotive services providers - primarily vehicle rental companies - were down by 1.43% in the latest week, the worst showing among the significantly sized sectors.

Also among the main underachievers in the latest week were food stores (down 1.24%), depository financial institutions (down 1.19%), the non-depository financials and building construction sectors (both down 1.14%) and petroleum refining (down 1.11%)

Both food stores and the non-depository financials had been among the relatively better performers - i.e., those with only modest losses - in the previous week, the grocers' second straight week among the stronger finishers.

On the other hand, the depository financials have now been among the worst-performing sectors in two weeks out of the last three, and building construction has had that unwanted honor in two weeks out of the last four.

On the upside, real estate companies had the best showing of any major sector this past week, notching a hefty 2.04% return.

The sector accomplished the somewhat unusual feat of going from worst to first; in the week ended Sept. 30, real estate had nosedived by 6.12%, by far the biggest loss of any of the significantly sized sectors that week, its second straight week as the worst performer and third straight week among the big losers.

Even with the latest week's strong gain, real estate has still been among the worst laggards in four weeks out of the last seven - although the volatile sector has also now been among the top performers in the other three weeks out of that seven-week span.

Other sectors among the elite finishers this past week included financial brokers and exchanges (up 1.70%), metals mining (up 0.65%), telecommunications (up 0.53%), lodging (up 0.23%) and machinery and computer manufacturers (up 0.18%).

Along with real estate, the brokers and exchanges had been among the worst performers the previous week for a third consecutive time, while metals mining and lodging had each been there for two consecutive weeks. Even with its latest gain, lodging has been among the big losers in three weeks out of the last five and five weeks out of the last eight.

But the machinery and computer makers have now been among the best sectors in three weeks out of the last five.

Year-to-date returns weaken

On a year-to-date basis 40 weeks into 2011, bonds of the major-sized sectors have turned decidedly weak, with only seven out of 30 showing cumulative returns of at least three full percentage points. That was well down from 13 sectors the week before and 20 sectors the week before that, ended Sept. 23.

One sector has returned more than 7% and none were above 6% or 5% - a comedown from the week before when one sector registered a more than 7% year-to-date gain and one was more than 5%.

There were four sectors beating 4% and two above 3% this time, versus the previous week's four sectors exceeding 4% and seven more than 3%.

While the number of sectors with relatively strong year-to-date totals fell off, the number with weak cumulative returns or even losses multiplied rapidly. Six sectors had readings better than 2%, down from eight the week before. Five topped 1%, up from three the week before, and six sectors had gains of more than zero but less than 1%, also up from just three the week before.

And the number of sectors in negative territory year to date also doubled to six, after having held steady at three for two consecutive weeks.

Bonds of food store operators remained in the lead in the latest week with a 7.09% return for the year so far. They were followed by precision instrument makers at 4.81%, electric and gas services at 4.75%, oil and gas exploration and production companies at 4.24% and food manufacturers at 4.04%.

Bringing up the rear, building construction fell to a 4.86% loss, real estate showed a 3.67% deficit for the year, and publishing was off by 2.99%. Sliding into the red for the first time were insurance carriers (down 2.39%), depository financials (down 2.05%) and brokers and exchanges (down 1.05%).

Key gauge deeper in the red

Looking at the overall domestic high-yield market, junk bonds, as measured by the Merrill Lynch High Yield Master II index, had a one-week loss of 0.801% - the fifth consecutive downturn, sixth in seven weeks and ninth in the last 11 weeks.

The losses continue to reflect the complete disappearance of the momentum that the market had generated during the first half of the year. The week before, the index showed a 1.736% decline, one of its biggest weekly losses this year.

The latest loss deepened the index's year-to-date loss to 2.481% from 1.693% the previous Friday - its first weekly downturn of 2011.

Although Friday's year-to-date loss was a little improved from its worst showing of the year, the 3.998% deficit recorded last Tuesday, those results still stood in stark contrast to the 2011 peak level of 6.362%, set on July 26.

As of Friday, the index showed an average price of 92.597, a yield to worst of 9.757% and a spread to worst of 848 basis points over comparable Treasuries, versus a price of 93.521, a yield of 9.511% and a spread of 834 bps at the end of the previous week.

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