Advantage Data: Real estate leads continued junk market major-sector rally 'clean sweep'

By Paul Deckelman

New York, Feb. 27 - The high-yield market recorded its eighth straight advance for 2012 so far last week and its 13th consecutive weekly gain overall, going back to early December. Once again, a large majority of industry groupings - in fact, almost all of them - showed gains last week, according to sector-tabulated bond-performance statistics supplied to Prospect News by Advantage Data Inc.

Of the 71 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 66 finished in the black last week, no sectors were in the red and five others did not show enough statistically meaningful activity to produce any kind of results.

That continued and greatly strengthened the bullish trend seen the week before, ended Feb. 17, when 52 sectors posted gains, 16 had negative results, one sector was unchanged, showing neither a gain nor a loss, and four others produced no results. In the interim, Advantage Data recalibrated its index, dropping two sectors to bring the total number tracked down to 71 from the prior week's 73.

With none of the sectors showing actual losses in the latest week, it also follows that all 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 in the latest week, against none in the red.

The week before, 26 of the major sectors had shown positive results, with three recording negative results and one other finishing with neither a gain nor a loss.

Among specific major sectors in the latest week, bonds of real estate companies had the best showing; other groups demonstrating strength included publishing and metals processing.

Although none of the significantly sized sectors - or any sectors at all, for that matter - actually ended in the red this past week, several, such as machinery and computer manufacturing and food manufacturing, had relatively small gains versus all of the other sectors.

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 10th straight week, and the eighth straight week so far this year, against no "down" weeks.

Key measure adds to gains

The Merrill Lynch index showed junk bonds with a one-week gain of 0.794% as of Friday - despite it being a holiday-shortened week with the U.S. debt markets closed last Monday for Presidents Day. The week before, the index had seen a 0.293% one-week return.

The latest gain lifted the index's year-to-date return to 4.792% at the close Friday versus 3.967% the prior week. Friday's close was also a new peak level for 2012, surpassing the old mark of 4.501%, set on Thursday.

Other components of the Merrill Lynch index also firmed on the week. As of Friday, the index showed an average price of 101.920, a yield to worst of 7.035% and a spread to worst of 613 basis points over comparable Treasuries, versus the previous week's price of 101.257, a yield of 7.239% and a spread of 631 bps.

Real estate leads the rally

Back on a sector basis, Advantage Data meanwhile showed bonds of real estate companies with the best performance among the major sectors last week, when they rose by 2.07%.

Other strong sectors this past week were publishing (up 1.31%), metals processing (up 1.14%) and the insurance carriers and financial brokers and exchanges sector, which were each up by 1.10% on the week.

It was a solid rebound for the publishers, who had been among the worst performers the previous week with a paltry 0.01% gain, and the brokers and exchanges group, which had been among the Bottom Five for a second consecutive week with a 0.28% loss.

On the downside in the latest week, no industry groups actually showed any losses. However, relative underperformers included machinery and computer manufacturing (up 0.29%), food manufacturing (up 0.32%), transportation equipment manufacturing (up 0.41%), building construction (up 0.51%) and precision instrument manufacturing - chiefly medical device makers - (up 0.52%). It was a come-down for the latter sector, which had been among the elite performers the previous week with a 0.43% gain.

Real estate in lead for year

Eight weeks into 2012, real estate - buoyed by its index-leading performance on the week among the significantly sized sectors - held the top spot on a year-to-date basis among the significantly sized sectors for a fourth straight week, with a return of 9.83%. Building construction remained in the runner-up position with a year-to-date return of 8.99%. Also showing strength have been depository financial institutions (up 7.53%), financial brokers and exchanges (up 6.98%) lodging (up 6.92%) and insurance carriers (up 6.91%).

No major sectors were actually in the red for the year to date this past week, but food stores (up 3.04%) had the smallest return so far. Others posting relatively modest gains on a cumulative basis included electric and gas services (up 3.28%), oil and gas exploration and production (up 3.38%), food manufacturing (up 3.57%) and publishing (up 3.71%).

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