B of A High Yield Broad Market index down 0.40% on week; 2008 loss grows to 2.99%

By Paul Deckelman

New York, Aug. 25 - The Banc of America Securities High Yield index fell 0.40% in the week ended Friday, giving back most of the 0.57% gain seen in the previous week ended Aug. 15, which had been its second straight weekly rise.

The latest setback deepened the index's year-to-date loss to 2.99% from 2.60% the week before. The year-to-date deficit remains in between the index's 1.86% peak level for the year, seen in the two weeks ended May 16 and May 23, and its 2008 low point, a 4.15% loss the week ended March 14.

The index showed losses the first three weeks of the year and continued in that negative trend most weeks through mid-March but then nosed upward with seven straight weeks of gains through early May. After that, it turned choppy and inconsistent for several weeks, alternating gains, losses and one week that saw neither a gain nor a loss but a flat 0.00% reading. But more recently, the index has shown eight losses in the past 11 weeks, including five straight losses at one point starting in mid-June.

With 34 weeks now in the books, there have been 15 weekly gains, 18 losses and the one unchanged week.

Spread wider, total value declines

B of A analysts said the index's average spread over Treasuries rose to 857 basis points from 846 bps the week before. For now, that measure remains between its tight point of the year, 651 bps in the week ended June 13, and the wide point for the year of 862 bps in the March 14 week. This year's spreads have been notably wider than the 613 bps seen at the end of 2007.

The index's yield to worst widened to 11.77% from 11.64% the week before. That set a new 2008 high point, eclipsing the old mark of 11.72% seen in the week ended Aug. 1, while the 2008 low was 9.98% in the May 16 week.

The index tracked 1,546 issues of $100 million or more, down from 1,549 the week before, and its overall market value fell to $571.9 million from $574.2 billion the week before, remaining substantially below the 2007 year-end total of $595.3 billion. The latest week's total is also well below the 2008 peak of $614.9 billion in the May 23 week, though still a little above this year's low of $569.1 billion seen in the March 14 week. B of A sees the index as a reliable proxy for the high-yield universe, which by some estimates is valued around $1 trillion.

By the ratings categories for the three major baskets of credits into which B of A divides the index (excluding the relatively small group of unrated issues), the CCC rated credits had the worst showing, dropping 0.94%, while the single-B rated bonds fell 0.31% and the BB rated issues were off 0.21% - the fourth week in the last five in which the BBs outperformed the other two groups. The lone exception to that was in the prior week, when the CCCs led the way with a rise of 0.65%, followed by the single-Bs, up 0.57%, while the BBs brought up the rear with a 0.51% gain.

Negative sectors regain lead

In the latest week, 23 of the 37 active industry sectors into which B of A divides its high-yield universe were in negative territory and 14 sectors had positive returns. In the previous week, 33 sectors finished in the black and just four were in the red. Three other sectors - life/health insurance, credit insurance and leisure equipment and products - exist on paper and technically remain part of the index but do not currently have any high-yield issues trading in them.

At the beginning of the year, most weeks saw negative sectors dominant, but the breakdown essentially evened out after that. To date, sectors have shown more gains in 16 weeks, more losses in 17 and were evenly split one week.

Banking week's worst sector

Among specific sectors, banks were the worst-performing group, plunging 4.69% to inherit that dubious distinction from the previous cellar-dweller, oil and gas, which had fallen 0.36% in the Aug. 15 week.

Automobiles lost 2.02%, wiping out the exact-same-sized gain the group had posted the previous week to make it to the Top Five list of best-performing sectors for a second straight week. The volatile autos have now also made the Bottom Five list of worst-performing sectors in three weeks out of the past five.

Other telecommunications (down 1.25%), other health care (down 1.19%) and gaming, lodging and leisure (down 1.06%) rounded out the latest week's Bottom Five. It was the second straight week there for other telecom, which had also been among the worst losers the week before with a 0.31% loss.

Consumer products week's best sector

On the upside, consumer products rose an index-best 0.41%, taking over the top spot from the previous week's champion, diversified telecom, which had a 2.34% gain in the Aug. 15 week.

Advertising-dependent media (up 0.40%), industrial products (up 0.37%), real estate (up 0.36%) and pipelines (up 0.34%) rounded out the latest week's Top Five. It was a rebound for pipelines, which had been among the Bottom Five the week before with a 0.13% loss.

Banks still year's worst sector

On a year-to-date basis, there was no change in the relative rankings of the worst-performing sectors, which have now been in the same order for three consecutive weeks. Banking was not only the week's worst performer but also remained the biggest loser for the year so far, as its 2008 loss ballooned out to 20.07% from 16.13% the week before.

Ad-dependent media, despite its Top Five weekly showing, was again second worst on the year, although its cumulative loss of 14.47% was narrower than the previous week's 14.81%.

Diversified financials remained third worst, its loss for the year increasing to 13.95% from 13.07%.

Bottom Five finisher gaming, lodging and leisure stayed at fourth worst, as its loss for the year gapped out to 12.82% from 11.88%.

Fellow Bottom Fiver autos was again the fifth-worst sector, as its year-to-date loss pushed out to 11.89% from 10.07% previously.

Wireless telecom remains year's best group

The relative rankings of the best year-to-date sectors likewise held steady. Wireless telecom remained the best performer for the year to date, although its cumulative return only inched up to 9.09% from 9.07% previously.

Health-care equipment and services was again second best, its return widening to 6.21% from 6.10%.

Metals and mining held on to third place, although its return declined to 5.27% from 5.46%.

Health-care facilities stayed fourth best, although its return for the year also retreated, to 5.09% from 5.33%.

Electric utilities continued in fifth place as its 2008 return rose a little to 3.91% from 3.86%.

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