Advantage Data: Real estate, publishers led key-sector rebound last week; auto services skid

By Paul Deckelman

New York, June 6 - The high-yield market got back in the black last week, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

Junk recovered after having stumbled the week before that, ended May 27, which had ended a nine-week winning streak dating back to late March.

The rebound represented a return to the pattern of strength seen in the sector breakdowns for most of this year; after advances were recorded in each of the first nine weeks of this year - part of a 14-week winning streak that dated all the way back to last Dec. 3 - that streak was snapped by negative results over two weeks in mid-March. The sectors rebounded later that month and had been on the rise ever since then until the May 27 week, which was only the third retreat on the year.

Resuming the trend of solidly, and usually overwhelmingly positive results most weeks, 45 of the 76 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 27 sectors ending in the red and another four showing not enough statistically meaningful activity to produce any kind of results.

While not an overwhelming performance, that still represented a sharp recovery from the breakdown seen the week before, when there were 48 sectors showing negative returns, with 24 sectors posting positive numbers, and four showing no results.

Reflecting the turnaround, 20 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 10 finishing in the red - an exact mirror image of the previous week, when 20 sectors showed negative results against 10 sectors showing a gain.

Among specific sectors, bonds of real estate companies and publishers showed particular firmness in the latest week. On the downside, automotive services, wholesale durable goods distributors and food stores had the biggest losses.

But while the sector breakdowns showed a comeback from the previous week's weakness, 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, fell on a Friday-to-Friday basis versus the previous week's cumulative return for a second consecutive week, after having been on the upside for nine straight weeks before that.

Real estate leads rally

Among specific significantly sized sectors, the best-performing sector this past week was real estate, whose bonds rose by 0.52%. The group accomplished the relatively rare feat of going from worst to first; the week before, it had posted the largest loss among the major sectors, down 0.67%, the third time in five weeks that the sector had been among the worst finishers.

Real estate was followed by publishing (up 0.27%), which also had been among the previous week's worst performers, having that unwanted honor, in fact, for a third consecutive week.

Also showing strength in the latest week were insurance carriers (up 0.21%), financial brokers and exchanges (up 0.18%), electric and gas services (up 0.15%), and precision instrument manufacturing (up 0.14%).

The insurers and the precision instrument makers - chiefly manufacturers of medical devices - were each among the best major-sector finishers for a second straight week and the utilities were among them for a third week in a row; the latter has now been among those elite finishers in five weeks out of the last six. The brokers have now been there in three weeks out of the last four.

On the downside, automotive services - chiefly vehicle rental companies - had the worst performance of any major sector, down 0.33%. The group has now been among the underachievers for three straight weeks.

Wholesale durable goods distributors (down 0.32%), food stores (down 0.29%), health care (down 0.21%), building construction (down 0.18%) and business services (down 0.15%) rounded out the list of the week's weakest performers.

It was a sharp comedown for construction, health care and food stores, which were all among the best finishers in the May 27 week; the grocers, in fact, had been the best-performing key sector that week, with a 1.11% gain.

Showing the volatility of the sector's bonds, the food stores group has now both been among the worst performers in two weeks out of that last three - but has also been among the strongest finishers in five weeks out of the last seven.

Insurers grab lead for year

On a year-to-date basis 22 weeks into 2011, bonds of the major-sized sectors have been strong, with 27 out of 30 showing cumulative returns of at least three full percentage points, including one above 8% year to date and two above 7%, 10 more above 6%, seven others topping 5% and an additional four above 4%.

Bonds of insurance carriers surged into the lead with a year-to-date return of 8.30%, followed by food stores (up 7.49%), petroleum refiners (up 7.11%), depository financial institutions (up 6.61%) and electric and gas utilities (up 6.55%).

Bringing up the rear, publishing had a relatively subdued 2.19% year-to-date return, followed by real estate (up 2.68%), metals mining (up 2.84%), automotive services (up 3.58%) and building construction (up 3.76%).

Key indicator struggles again

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 as of Friday of 0.127%, its second consecutive week-over-week loss. In the week ended May 27, the index was down by 0.187% for the period.

Those back-to-back losses followed nine straight weeks of gains going back to late March and left the index with a year-to-date return of 5.738% - down from 5.872% the previous Friday and down further from the 6.071% cumulative gain posted at the end of the week ended May 20, the 2011 peak level so far.

As of Friday, the index showed an average price of 103.655, a yield to worst of 6.97% and a spread to worst of 541 basis points over comparable Treasuries, versus a price of 104.099, a yield of 6.76% and a spread of 523 bps at the end of the previous week.

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