Advantage Data: Automotive services cruise as major high-yield sector rally continues

By Paul Deckelman

New York, Nov. 7 - The high-yield market had its fourth strong showing in a row in the week ended Friday as a majority of industry groupings showed gains, according to weekly sector-tabulated bond-performance statistics supplied to Prospect News by Advantage Data Inc.

Junk thus continued to build upon the advances it has posted since about the middle of October, when it got back into the black for the first time after five straight weeks on the downside before that, a losing streak that dated back to the week ended Sept. 9.

Last week was the 30th time this year that a majority of sectors ended on the upside, against 14 weeks of downturns - although most of that lopsided positive breakdown reflects the tremendous strength seen early in the year, when there was week-after-week of improvements.

After the market's peak levels in late May, upturns and downturns were evenly matched for a time with a week or two of one, followed by a week or two of the other. The market then turned decidedly negative in late summer and early fall before finally beginning to snap out of it of late.

Of the 72 broad industry sectors into which Boston-based Advantage Data currently divides its entire high-yield universe, 41 finished in the black in the latest week, 27 sectors were in the red and another four sectors did not show enough statistically meaningful activity to produce any kind of results.

But that represented a notable weakening from the breakdown seen the week before, ended Oct. 28, when 64 sectors posted positive returns, only three had negative results and five other sectors did not show any results. Similar breakdowns had also been seen in the two weeks before that, ended Oct. 21 and Oct. 14.

And in another partial retreat from the prior week's strongly positive pattern, 19 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 11 of them finishing in the red - versus the three weeks before that, when all 30 of the major sectors had positive results each time, against no negatives.

Among specific major sectors in the latest week, bonds of automotive services, building construction and electric and gas services companies enjoyed the strongest showings.

On the downside, real estate operators, lodging providers and health care companies had the biggest losses among those major sectors.

Looking at statistical indicators of overall market performance, the junk market's total year-to-date return, as measured by the widely followed Merrill Lynch High Yield Master II index, eased for the first time in the week ended Friday, after three straight weeks before that on the rise.

Key measure slips

Junk bonds, as measured by the Merrill Lynch index, had a one-week loss of 0.348%, in contrast to the previous three weeks of gains, including the 2.349% advance in the week ended Oct. 28, which was the biggest weekly rise this year.

Those three weekly gains, in the weeks ended Oct. 14 through Oct. 28, had followed five weeks on the slide dating back to early September. The index has now been down in six weeks out of the last 10 and in 10 weeks out of the last 15, 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 until very recently had been absent for much of the second.

The latest loss brought the index's year-to-date return down to 3.917% on Friday from 4.28% at the end of the previous week, which had been the index's highest year-to-date reading since the 5.03% recorded on Aug. 4. Those readings still remained below the 2011 peak level of 6.362%, set on July 26. Recent levels, though, 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 healthy rebound from their beleaguered early October levels. As of Friday, the index showed an average price of 98.130, a yield to worst of 8.305% and a spread to worst of 728 basis points over comparable Treasuries, versus a price of 98.690, a yield of 8.097% and a spread of 692 bps at the end of the previous week.

Auto services have Advantage

Back on a sector basis, Advantage Data meanwhile showed bonds of automotive services companies - chiefly vehicle-rental operators - having the best showing of any major sector, posting a 1.04% return last week. It was the group's fourth consecutive week among the better finishers.

Other sectors among the elite performers this past week included building construction (up 0.90%), electric and gas services (up 0.55%), food stores (up 0.44%) and machinery and computer manufacturers (up 0.43%).

It was the third straight week among the top finishers for construction; however, both the utility operators and the machinery and computer makers had been among the weakest performers the previous week. The latter group had, in fact, been there for the previous three weeks and had the worst major-sector return in the Oct. 28 week.

On the downside, real estate had the worst showing this past week, with a 1.19% loss. It had the unwanted honor of having gone from first to worst, after posting the best major-sector showing in the Oct. 28 week, when it had zoomed by 4.73%.

Other underachievers this past week included lodging (down 0.91%), health care (down 0.66%), coal mining (down 0.60%) and petroleum refining (down 0.49%). It was the second straight week among the downsiders for coal and the third straight week for the refiners. In contrast, health care, like real estate, had been among the better performers the week before.

Food stores firm year to date

On a year-to-date basis 44 weeks into 2011, bonds of food store operators remained in the lead in the latest week with a return of 10.41% for the year so far. They were followed by electric and gas services (up 8.38%), oil and gas exploration and production companies (up 8.02%) and food manufacturers (up 7.66%).

Bringing up the rear, none of the significantly sized sectors was in the red for the year, although publishing had just a 1.06% gain, followed by building construction (up 1.39%) and real estate (up 2.09%).

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