B of A High Yield Broad Market index plummets 3.11% on week; 2008 loss jumps to 23.29%

By Paul Deckelman

New York, Oct. 20 - The Banc of America Securities High Yield index fell by 3.11% in the week ended Friday - its fifth major loss in as many weeks, coming on the heels of the mammoth 8.90% plunge seen in the previous week ended Oct. 10.

The latest week's slide caused the index's year-to-date loss to balloon out to 23.29% - its deepest deficit so far this year - from a year-to-date loss of 20.83% the week before, the previous widest 2008 loss. In contrast, the index's peak level for the year was a 1.86% cumulative gain seen over the two weeks ended May 16 and May 23.

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 13 losses in the past 19 weeks, including the latest five, and another five straight from mid-June to mid-July.

With 42 weeks now in the books, there have been 18 weekly gains, 23 losses and the one unchanged week.

Spread bulges out

B of A analysts said the index's average spread over Treasuries gapped out to 1,545 basis points from 1,445 bps the week before, the previous wide point for the year.

The spread's tightest level of the year was 651 bps in the week ended June 13, although even then, this year's spreads have been notably wider than the 613 bps seen at the end of 2007.

The index's yield to worst also widened out sharply to a new 2008 high of 18.35% versus 17.31% the week before, the previous high for the year. The 2008 low was 9.98% in the May 16 week.

The index tracked 1,540 issues of $100 million or more, down from 1,543 issues the week before, while its overall market value slid to $440.8 billion, a new low point for the year, from $457.4 billion the week before, the previous 2008 low total.

The index's total value thus moves still further below the 2007 year-end total of $595.3 billion, to say nothing of its peak level for this year at $614.9 billion in the May 23 week. B of A sees the index as a reliable proxy for the high-yield universe, which by some estimates is valued at 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), with all three groups once more finishing in the red, the CCC rated credits again had the worst loss, sliding 4.19%, followed by the BB rated bonds, which were down 3.77%, while the single-B rated paper did better, relatively speaking, with just a 2.02% loss.

It was the fourth consecutive week in which the CCC bonds lagged the other two groups, and it broke a four-week streak in which BB paper had relatively outperformed the other two; in the week ended Oct. 10, the CCCs surrendered 11.88% and the single-Bs were down 9.90%, while the BBs showed "only" a 6.19% loss.

Negative sectors rule

In the latest week, 33 of the 38 active industry sectors into which B of A divides its high-yield universe finished in negative territory, with five sectors in positive territory, for a fifth consecutive week of overwhelming negative dominance. In the previous week, 37 sectors were in the red, with just one - credit insurance - finishing in the black.

At the beginning of the year, most weeks saw negative sectors dominate, but the breakdown essentially evened out after that. To date, sectors have shown more gains in 19 weeks, more losses in 22 and were evenly split one week.

Diversified telecom week's worst sector

Among specific sectors, diversified telecommunications had an index-worst loss of 9.61%, taking over as the cellar-dweller from automobiles, which in the previous week had skidded 28.58%, its second straight week as the worst finisher, on top of an 11.86% loss in the week ended Oct. 3.

Telecommunications generally dominated the Bottom Five list of the worst-performing industry groups; besides the diversified telecoms, other telecom lost 8.74% and wireline telecom was down 8.61%. Gambling, lodging and leisure (down 7.92%) and consumer products (down 6.80%) rounded out the latest week's Bottom Five.

It was a comedown for gaming, lodging and leisure, which in the previous week - in which the Top Five list of best-performing sectors was dominated by sectors with relatively smaller losses - had been among that select group with a relatively modest 3.91% decline. However, the gaming group has now been among the Bottom Five in two weeks out of the last three, including the 7.69% loss in the Oct. 3 week.

Banks week's best sector

On the upside, banks finished ahead of all the other sectors for the second time in three weeks and again did so in explosive fashion, as the volatile sector jumped an even 19%. That was in sharp contrast to its 14.98% nosedive the previous week, which was bad enough for the banks to be included among that week's Bottom Five.

However, in the week before that, ended Oct. 3, the group had jumped by an amazing 40.12%, propelled northward by strong gains notched by some issues of Washington Mutual Inc. on the news that the parent holding company has as much as $5 billion squirreled away that could be used to pay down senior holdco bond debt, and with whatever funds would be left over, subordinated holdco paper. But before that, the banks - on a wild roller-coaster ride linked to the ongoing mortgage meltdown/credit crunch - had been among the Bottom Five over six straight weeks, and had been the worst finishers in four of them.

The banks took the top spot away from credit insurance, which had a 0.28% gain in the Oct. 10 week and which, as mentioned, was the only sector to actually end in the black that week.

Autos (up 10.35%), diversified financials (up 4.81%), commercial services (up 0.69%) and food and drug retailers (up 0.53%) rounded out the latest week's Top Five list.

For the automotive names, it was a welcome switch onto smooth, hard blacktop from the bumpy road the volatile sector has been traveling recently, especially including the prior week, when as noted, autos were by far the worst performers with an almost 30% drop - the fourth straight week the group was parked among the Bottom Five and the second week in which it was the biggest loser of all.

Commercial services were also on the rebound, after having been in the Bottom Five the week before with a loss of 11.98%.

Autos year's worst sector

Despite the big Top Five-worthy jump in the automobile sector's weekly performance and even with a resulting sizable cut in its year-to-date loss to 44.16% versus 48.21% the week before, that cumulative deficit remains big enough to keep the autos consigned to the junkyard as clearly the worst 2008 performer.

Although the second-worst year-to-date performer, banks, had an even bigger weekly gain - best in the index, as noted - which allowed the sector's year-to-date loss to shrink markedly to 39.56% from 49.21%, it was unable to improve its 2008 position.

Advertising-dependent media fell one position in the yearly rankings, to third-worst from "just" fourth- worst previously, as its loss widened to 38.34% from 35.77% previously.

Real estate also fell by one notch, to fourth-best from fifth before, as its loss grew to 34.19% from 29.85%.

Top Fiver diversified financials improved two positions in the week, to just fifth-worst from third before, as its loss on the year narrowed a bit to 33.85% from 36.38%.

Insurance brokerage tops for year

On the upside, with all sectors showing losses for the year for a second consecutive week, the insurance brokers remained the best performers on a relative basis, with the smallest deficit, although even this widened to 2.45% from 0.58% previously.

Top Five finisher food and drink retailing, which previously had been in a fourth-place tie with entertainment with a 6.49% loss, improved to second-best on the year as its loss declined to 6.06%.

Entertainment meanwhile improved to third-best, although its loss widened to 8.26%.

Health care services, previously second-best on the year with only a 6.10% loss, fell to just fourth-best as its loss widened to 8.29%.

Transportation, not previously among the best finishers, improved to fifth-best on the year, although its cumulative loss widened to 9.72% from 7.74% previously. It displaced wireless telecom, which fell out of leadership contention from third-best the week before, as its 2008 loss nearly doubled to 12.57% from 6.35%.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.