Advantage Data: Lodging big loser as high-yield major-sectors slide continues

By Paul Deckelman

New York, Nov. 21 - The high-yield market recorded sizable setbacks for a second consecutive week as a majority of industry groupings showed losses, according to weekly sector-tabulated bond-performance statistics supplied to Prospect News by Advantage Data Inc.

The two downside weeks, including the holiday-shortened previous week ended Nov. 10, stood in stark contrast to four straight weeks of gains before that, dating back to the week ended Oct. 14. That surge, in turn, had followed five straight weeks on the downside, a losing streak that dated back to the week ended Sept. 9.

Last week was the 16th time this year that a majority of sectors showed losses, against 30 weeks of gains - although most of that lopsided roughly 2-to-1 positive breakdown reflects the tremendous strength seen early in the year, when there was week-after-week of improvements.

Of the 73 broad-industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 48 finished in the red in the latest week, 22 sectors were in the black, one showed neither a gain nor a loss and another two sectors did not show enough statistically meaningful activity to produce any kind of results.

While still decidedly negative, that represented a moderating of the even more strongly bearish trend seen the week before, when 55 sectors posted negative returns, 25 had positive results and three other sectors did not show any results.

Among 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 - 27 ended in the red this week, with only three of them finishing in the black, extending and even strengthening the trend seen the week before, when 25 of the sectors had negative results, against just five positives.

Among specific major sectors in the latest week, bonds of lodging providers, precision instrument manufacturers and financial brokers and exchanges had the biggest losses.

On the upside, food store operators, amusement providers and metals processing companies saw the strongest showings among the major 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 the week on Friday lower for a third consecutive time, after three straight weeks before that on the rise.

Key measure continues lower

Junk bonds, as measured by the Merrill Lynch index, had a one-week loss of 0.705%, on top of the previous week's 0.739% downturn.

The index has now been down in seven weeks out of the last 10, as the junk market struggles to try and rebuild the strong momentum which the market had generated during the first half of the year, but which has been absent for much of the second half. Downturns over the most recent three weeks, also including the week ended Nov. 4, followed three straight gains in the weeks ended Oct. 14 through Oct. 28, which in turn had followed five weeks on the slide dating back to early September.

The latest loss brought the index's year-to-date return down to 2.422% at Friday's close, versus 3.149% a week earlier, Nov. 11 - albeit on extremely light volume that day, with most participants absent due to the Veterans Day holiday. Those readings remain considerably below the 2011 peak level of 6.362%, set on July 26, although recent levels have been well up from the index's low point of the year, the 3.998% deficit recorded on Oct. 4.

Other components of the Merrill Lynch index also retreated on the week, but still continued to show a rebound from their more beleaguered early-October levels.

As of Friday, the index showed an average price of 96.383, a yield to worst of 8.679% and a spread to worst of 62 basis points over comparable Treasuries, versus a price of 97.240, a yield of 8.519% and a spread of 747 bps at the end of the previous week.

Hoteliers get hit

Back on a sector basis, Advantage Data meanwhile showed bonds of lodging operators having the worst showing of any a significantly sized sector. They were down by 1.17% on the week.

Other underachievers this past week included precision instrument manufacturers - chiefly makers of medical devices - which lost 1.04%, as well as financial brokers and exchanges (down 0.74%) and the coal mining and automotive services sectors, (each down 0.72%).

It was the fourth straight week among the big losers for the coal miners, which had actually been the worst-performing major sector in previous week, with a 0.90% loss.

On the upside, food stores had the best finish of any major sector for a second consecutive week, ringing up a 0.28% gain on the week, on top of the 0.54% advance the week before. It was the grocers' third straight week among the best sectors.

Other sectors showing gains in a mostly down week were amusement (up 0.12%) - the sector's second straight week among the winners - and metals processing (up 0.04%). Metals mining companies were down by 0.10% and petroleum refining by 0.12%, both relatively modest losses.

Food stores firm year to date

On a year-to-date basis 46 weeks into 2011, bonds of food store operators remained in the lead among the significantly sized sectors in the latest week with a return of 10.74% for the year so far. They were followed by electric and gas services (up 8.26%), oil and gas exploration and production companies (up 7.58%) and food manufacturers (up 7.12%).

Bringing up the rear, real estate showed a cumulative gain of just 0.23%, followed by publishing (up 0.79%) and building construction (up 1.01%).

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