Advantage Data: Retail, refiners led high-yield key-sector comeback last week; auto services off

By Paul Deckelman

New York, Aug. 22 - The high-yield market pulled out of a two-week long nosedive last week, as a majority of industry groupings - particularly the most significantly sized - showed gains rather than losses, according to weekly industrial-sector bond-performance statistics supplied to Prospect News by Advantage Data Inc.

It was the 25th weekly upturn so far this year - and the first in three weeks - against eight weeks when high yield has ended on the downside. Reflecting the volatile nature of the market these days, the now-ended two-week losing streak seen in the weeks ended Aug. 5 and Aug. 12 had followed five weeks of upturn immediately preceding the nosedive.

Some 42 of the 72 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 25 sectors in the red and another five sectors showing not enough statistically meaningful activity to produce any kind of results.

That represented a turnaround from the decidedly bearish pattern set in the Aug. 12 week, when 65 sectors posted negative returns, just two ended with positive results and four others showed no results (Advantage Data added one sector to its roster in the intervening week).

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 - 20 ended in the black this week, with 10 finishing in the red, reversing the trend seen the week before, when all 30 of the sectors showed negative returns and none of them had positive results.

Among specific major sectors in the latest week, bonds of miscellaneous retailers, petroleum refiners and chemical makers were the best finishers, while automotive services providers - chiefly vehicle rental companies - had the worst finish.

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, rose for the first time in four weeks on a Friday-to-Friday basis, although it has still now been on the downside in four weeks out of the last six and remains well below its peak level for the year.

Retailing leads rally

Among specific significantly sized sectors, bonds of miscellaneous retailers showed the biggest gain, up 1.05% on the week. The sector - a catch-all category which includes such varied businesses as drug stores, fuel dealers, book stores, sporting goods retailers and non-store catalog and mail-order retailers, among others - had been among the worst performers in each of the previous two weeks.

Other significant gainers last week included petroleum refining (up 0.97%), chemical manufacturing (up 0.91%), oil and gas exploration and drilling (up 0.84%), electric and gas services (up 0.82%), and coal mining (up 0.80%). It was the sixth straight week the utilities were among the best performers, and they have been in that elite group now in 11 weeks out of the last 14. The coal miners, on the other hand, were rebounding after being among the worst finishers over three straight weeks.

On the downside, automotive services were down by a full percentage point, the worst of any significantly sized sector, although those car rental companies had been among the better finishers - meaning smaller losers - the week before.

Other underachieving sectors in the latest week were lodging (down 0.49%) publishing (down 0.24%), amusement (down 0.17%), building construction (down 0.15%) and non-depository financial institutions (down 0.13%).

Lodging, like auto services, had actually been among the better performers - i.e., smaller losers - the week before. But building construction was near the bottom of the pile for a second straight week and for a fourth week out of the last five. Publishers have been among the worst in five weeks out of the last seven and six weeks out of the last 10.

Food stores still first

On a year-to-date basis 33 weeks into 2011, bonds of the major-sized sectors have been moderately strong, with 22 out of 30 showing cumulative returns of at least three full percentage points, which represented a slight improvement from 21 sectors at 3% or above year to date, posted the week before. One was above 7%, two topped 6%, versus one in the previous week, one more was above 5%, and seven exceeded 4%, up one on the week. For a second straight week, two sectors were in negative territory on a year-to-date basis.

Bonds of food stores continued to hold the top spot with a year-to-date gain of 7.06%, followed by electric and gas services (up 6.97%) and precision instrument manufacturers (up 6.69%).

Bringing up the rear, publishing was down 0.56% and building construction down 0.53% year to date. Automotive services showed just a modest 0.74% year-to-date return.

Key indicator breaks slide

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 as of Friday of 0.421%, the first such advance recorded after three straight weeks on the slide, including the 2.833% downturn seen in the previous week, ended Aug. 12 - the largest weekly downturn seen so far this year.

The latest gain lifted the index's year-to-date return to 1.751%, up from the previous Friday's 1.325%, the lowest level at which the index had ended a trading week since the 0.872% reading seen on Friday, Jan. 7. However, even with that gain, the cumulative return remained well down from the 2011 peak level of 6.362%, set on July 26.

As of this past Friday, the index showed an average price of 97.927, a yield to worst of 8.388% and a spread to worst of 730 basis points over comparable Treasuries, versus a price of 97.667, a yield of 8.476% and a spread of 728 bps at the end of the previous week.

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