Advantage Data: Real estate leads continued junk market major sector rally; insurers lag badly

By Paul Deckelman

New York, Feb. 6 - The high-yield market began February last week the same way it has finished all of the weeks since the start of the new year - on the upside, notching its fifth straight advance for 2012 so far and its 10th consecutive weekly gain overall, going back to early December.

Once again, a large majority of industry groupings showed gains last week, according to sector-tabulated bond-performance statistics supplied to Prospect News by Advantage Data Inc.

Of the 73 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 59 finished in the black last week, 11 sectors were in the red, and three others did not show enough statistically meaningful activity to produce any kind of results.

That largely continued the bullish trend seen the week before, ended Jan. 27, when 68 sectors posted gains, just three had negative results and two others produced no results.

Of the most significantly sized sectors - as measured by the number of bond issuers, the collective number of issues tracked and their total face amount - 29 ended in the black in the latest week, with just one finishing in the red. That also continued the trend from the prior week, when all 30 of those sectors had shown positive results, with none posting a negative result.

Among specific major sectors in the latest week, bonds of firms in the financial sphere again topped the list, including real estate, depository institutions and brokers and exchanges.

Interestingly, the only significantly sized-sector finishing in the red was also a financial - insurance carriers - while several others, such as oil and gas exploration and production and amusement, had only relatively modest gains in what was otherwise a strong week.

Looking at statistical indicators of overall market performance, junk's total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, ended higher on Friday for a seventh straight week.

Key measure adds to gains

The Merrill Lynch index showed junk bonds with a one-week gain of 0.485% to notch that seventh consecutive weekly advance. The week before had seen a robust 1.194% one-week return.

The latest gain lifted its year-to-date return to 3.374% at the close Friday versus 2.876% the prior week. Friday's finish was also the peak level for 2012 so far, eclipsing the 3.151% high-water mark set just the session before.

With the latest week's advance, the index has now shown positive finishes in nine of the last 10 weeks, including in seven weeks out of the last eight, as the junk market continues to rebuild the strong momentum which high yield had generated during the first half of last year but which had then been only sporadically present for much of the second half.

Other components of the Merrill Lynch index also firmed on the week. As of Friday, the index showed an average price of 100.9832, a yield to worst of 7.387% and a spread to worst of 651.283 basis points over comparable Treasuries, versus the previous week's price of 100.354 - the first time that measure had nudged above the psychologically significant 100 figure to end a week since early last August - as well as a yield of 7.529% and a spread of 670.184.

Real estate leads rally

Back on a sector basis, Advantage Data meanwhile showed various financial sectors turning in the strongest performances among the significantly sized sectors for a second straight week, with three out of the top five, and the two best returns originating there.

Bonds of real estate companies had the best performance among the major sectors last week, when they rose by 1.04% It was the fifth consecutive week real estate has been among the top finishers.

Other strong sectors this past week were depository financial institutions (up an even 1.00%), lodging (up 0.98%), financial brokers and exchanges (up 0.95%) and paper manufacturing (up 0.87%).

It was the second straight week among the elite performers for the depository institutions and the third week in that select group for the brokers and exchanges sector.

On the downside, the insurance carriers sector (down 1.04%) was the only significantly sized sector finishing in the red.

Other relative underachievers in the most recent week - turning in fairly sedate returns versus everyone else - included energy exploration and production companies (up 0.19%), amusement (up 0.26%), food manufacturing (up 0.29%) and electric and gas services (up 0.33%).

Real estate in lead for year

On a year-to-date basis five weeks into 2012, the week's top finisher, real estate, also took over the top spot with a 7.44% return. It moved past the previous cumulative leader, building construction, which has returned 6.15% year to date. Also showing strength have been depository financials (up 5.39%), brokers and exchanges (up 5.24%) and lodging (up 4.60%).

Insurance carriers, hurt by their week's-worst finish, fell to a year-to-date return of just 0.10% this past week. Others posting relatively modest gains on a cumulative basis included publishing (up 1.06%), electric and gas services (up 1.86%), metals mining (up 2.03%), food stores (up 2.08%) and oil and gas exploration and production (up 2.09%).

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