Advantage Data: Auto services cruise as major sectors continue gaining

By Paul Deckelman

New York, Oct. 24 - The high-yield market had its second strong showing in a row in the week ended Friday as a majority of industry groupings showed gains, according to weekly sector-tabulated bond-performance statistics supplied to Prospect News by Advantage Data Inc.

Junk thus built upon the gains it posted the week before, ended Oct. 14, when it got back into the black for the first time after five straight weeks on the downside before that, a losing streak that dated back to the week ended Sept. 9.

Last week was the 28th time this year that a majority of sectors ended on the upside, against 14 weeks of downturns - 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, other than the results over the last two weeks, things have been decidedly negative lately. Even with the latest upturns, declines have still been seen in five weeks out of the last seven.

Of the 72 broad industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 63 finished in the black in the latest week, just four sectors were in the red and another five sectors did not show enough statistically meaningful activity to produce results.

That was almost identical to the breakdown seen the week before, when 64 sectors posted positive returns, only four had negative results and four other sectors did not show any results.

And in another continuation of the prior week's strongly positive pattern, all 30 of 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 black this week, with none of them ending in the red, for a second consecutive 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, posted a gain for the second straight week, although it was only the third such advance in the past nine weeks.

Auto services most improved

Bonds of automotive services providers - chiefly vehicle-rental companies - had the best showing of any major sector, posting a 2.77% return for the week. It was the second straight week among the top finishers for auto services, which had also been there in the Oct. 14 week with a hefty 3.00% gain, this after having been the single worst major-sector performer the week before that, ended Oct. 7, when it lost 1.43%.

Other sectors among the elite finishers this past week included building construction (up 2.60%), metals processing (up 2.55%), business services (up 2.16%), chemical manufacturing (up 2.09%) and coal mining (up 2.06%). The metals makers and the coal miners had each also been among the big winners the week before.

For a second straight week, as noted, there was no real downside this past week, with all sectors finishing in the black, but some sectors had relatively modest returns, chief among them food stores (up 0.42%). It was the third straight week the grocers were among the weakest performers and the second week in a row it had the smallest return among all of the key sectors.

Other relative underachievers this past week included metals miners (up 0.84%), machinery and computer manufacturing (up 0.94%), paper manufacturing (up an even 1.00%), depository financial institutions (up 1.04%), and petroleum refining (up 1.07%).

The machinery and computer makers and the paper companies were also both among the weaker finishers the week before, although the metals miners had actually been among the best finishers then for a second straight week.

The petroleum refiners have now been among the worst major-sector finishers in two week out of the last three, as have the depository financials, which have also been there now in three weeks out of the last five.

Year-to-date gains continue

On a year-to-date basis 42 weeks into 2011, bonds of the major-sized sectors improved in the latest week, with fully 23 out of 30 showing cumulative returns of at least three full percentage points - up from 17 the week before and well up from just seven sectors the week before that, ended Oct. 7.

Two sectors had returns above 7% last week, with three above 6% and six more topping 5%, versus none over 7%, one above 6% and three above 5% the week before.

There were six sectors beating 4% and six more above 3% this time, versus the previous week's five sectors exceeding 4% and eight registering more than 3%.

While the number of sectors with relatively strong year-to-date totals firmed for a second straight week, after having fallen sharply the week before that, the number with weak cumulative returns or even losses again diminished proportionally, after having multiplied two weeks earlier.

Just two sectors had readings better than 2%, down from six the week before, while the number topping 1% was halved, to one from two in the prior week. For a second straight week, only one sector had a gain of more than zero but less than 1%, versus six two weeks before.

And the number of sectors in negative territory year to date declined to three from four the week before and six the week before that.

Bonds of food store operators remained in the lead in the latest week with a 7.28% return for the year so far. They were followed by oil and gas exploration and production companies at 7.07%, electric and gas services at 6.87%, precision instrument makers at 6.76% and miscellaneous retailers at 6.07%.

Bringing up the rear, real estate showed a 1.64% deficit for the year, building construction had a 1.61% loss and publishing was off by 0.21%%, while insurance carriers were up by a very modest 0.81% and depository financial institutions by 1.03%.

Key measure moves up

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 gain of 1.884%, following the previous week's 2.546% advance, which had been the first rise after five straight weeks on the slide going back to early September.

However, the index has still been down in six weeks out of the last nine, reflecting the disappearance of the strong momentum which the market had generated during the first half of the year.

The latest gain raised the index's year-to-date return to 1.886%, up from the previous week's 0.002%, which had been the first time it ended the week still in the black since the 0.043% seen in the week ended Sept. 23. In between had been two weeks when the cumulative return had slid into the red.

While the cumulative gains over the last two weeks reflect improvement from the index's low point of the year, the 3.998% deficit recorded on Oct. 4, they still stand 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 96.523, a yield to worst of 8.675% and a spread to worst of 747 basis points over comparable Treasuries, versus a price of 94.851, a yield of 9.144% and a spread of 786 bps at the end of the previous week.

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