Advantage Data: Real estate again led high-yield key-sector gains last week; construction lagged

By Paul Deckelman

New York, April 11 - The high-yield market posted its third consecutive gain in the week ended Friday as it moved further away from the weakness seen during the prior two weeks on the downside, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

The continued rebound represented a return to the previous pattern of strength which had been seen over the first nine weeks of 2011, part of a 14-week winning streak that dated back to Dec. 3 but which was interrupted by the negative results in the weeks ended March 11 and March 18.

On a longer-term basis, gaining sectors have now outpolled losing sectors in 29 weeks out of the last 35, dating back to the week ended Aug. 13.

Resuming and extending the trend of solidly, and frequently overwhelmingly positive results most weeks, interrupted only by that two-week sojourn, some 66 of the 74 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 and another four sectors showing not enough statistically meaningful activity to produce any kind of results.

In the previous week, ended April 1, there were 61 sectors which had recorded positive results, against nine posting negative returns and four sectors with no results.

Some 29 out 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 black this week, with only one finishing in the red. That continued the trend seen over the previous two weeks, when 28 of the sectors had positive returns against just two negatives in each of those weeks.

Among specific sectors, real estate, chemical manufacturing, automotive services and lodging showed notable strength in the latest week. On the downside, only building construction actually finished in the red, although some other sectors, like electric and gas services, precision instrument manufacturing and papermaking, turned in particularly anemic positive returns.

On a statistical basis, the junk market's total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, rose on a Friday-to-Friday basis versus the previous week's cumulative return for a third straight week.

Real estate again leads rally

Among specific significantly sized sectors, the best-performing sector this past week was real estate (up 1.44%). It was the second straight week that sector finished on top, having also led the other sectors the week before with a 0.87% gain.

That was followed in the latest week by chemical manufacturing (up 1.08%), the automotive services and lodging sectors (each up 0.87%), financial brokers and exchanges (up 0.72%) and electronics manufacturing (up 0.65%).

It was a solid rebound for the chemical manufacturers, which had been among the worst performers in each of the previous two weeks; the sector in fact had been the single worst performer in the week ended April 1, when it was down 0.07%. The automotive services sector was also among the underperformers the week before, with a meager 0.07% return, but has now been among the best finishers in two weeks out of the last three.

On the downside, building construction lost 0.09% - the only sector actually finishing in the red this past week.

Several sectors with particularly weak positive showings included electric and gas services (up 0.13%), precision instrument manufacturing, chiefly medical devices (up 0.20%), paper manufacturing (up 0.25%), publishing (up 0.27%) and depository financial institutions (up 0.31%).

The utilities have now been among the worst finishers for three weeks in a row, and the paper manufacturers have been there for two weeks. The depository financials were among the best finishers the week before, but have still now been among the laggards in two weeks out of the last three.

Petroleum refining in lead

On a year-to-date basis 14 weeks into 2011, bonds of most of the major-sized sectors have been strong, with 27 out of the 30 showing cumulative returns of at least three full percentage points, including four above 5% year to date and 13 others topping 4%.

Petroleum refining and depository financial institutions remain locked in a see-saw struggle for supremacy, having swapped places at the top in each of the last three weeks. In the latest week, the refiners regained the lead they had relinquished the week before, with a 5.97% year-to-date return, dropping the depository financials back to runner-up status with a 5.60% return. Food stores have returned 5.35% and amusement 5.26%.

On the downside, real estate had a relatively weak, though improving, 1.57% year-to-date return, followed by metals mining (up 1.81%) and automotive services (up 2.84%).

Key indicator adds to gains

Looking at the overall domestic high-yield market, junk bonds, as measured by the Merrill Lynch High Yield Master II Index, rose by 0.532%, on top of gains of 0.357% in the April 1 week and the March 25 week's 0.28% gain, which in turn had followed two previous weeks of downturn in the index.

With 14 weeks in the books so far this year, that left the index with a total return of 4.620% as of Friday, up from 4.067% the Friday before and a new peak level for 2011's close, with an average price of 104.100, a yield to worst of 6.841% and a spread to worst of 482 basis points over comparable Treasuries, versus a price of 103.698, a yield of 6.985% and a spread of 498 bps at the end of the previous week.

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