B of A High Yield Broad Market index up 0.56% on week; 2008 loss narrows to 24%

By Paul Deckelman

New York, Nov. 10 - The Banc of America Securities High Yield index rose by 0.56% in the week ended Friday, its second straight gain including the 0.08% advance seen in the previous week, which ended Oct. 31. The two-week winning streak broke a skid of six major losses in as many weeks that ended in the week ended Oct. 24.

The latest week's gain caused the index's year-to-date loss to decline to an even 24% from the previous week's 24.43%, which was slightly below the 24.49% loss seen in the Oct. 24 week, its deepest deficit so far this year. 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. It 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 14 losses in the past 22 weeks, including the last six and another five straight downturns from mid-June to mid-July.

With 45 weeks now in the books, there have been 20 weekly gains, 24 losses and the one unchanged week.

Spread widens out as Treasuries tighten

Despite the index's overall gain on the week, B of A analysts said its average spread over Treasuries widened out to 1,620 basis points from 1,604 bps the week before. This was due to a notable tightening of Treasury yields on the week; the benchmark 10-year government issue, for instance, narrowed to a yield of 3.78% as of Friday from 3.95% the week before. The index's previous wide point for the year was 1,605 bps in the Oct. 24 week.

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

The index's yield to worst meantime eased to 18.87% from 18.92% the week before, the high for the year. The 2008 low so far was 9.98% in the May 16 week.

The index tracked 1,539 issues of $100 million or more, down from 1,547 issues the week before, although its overall market value increased to $435.8 billion from $434.3 billion the week before, the low point for the year.

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), the CCC rated credits lost 1.27% while the single-B rated bonds gained 0.14% and the BB- rated paper had the best showing, up 1.97%.

That stood in contrast to the week ended Oct. 31, when the CCCs lost 0.17% and the BBs were down 1.59% while the single-Bs did the best, jumping 1.66%. The latest week was the sixth week in the last seven in which the CCC bonds have lagged the other two groups.

Positive sectors rule

In the latest week, 28 of the 38 active industry sectors into which B of A divides its high-yield universe finished in positive territory, with 10 sectors in the negative. This breaks a seven-week trend of negative dominance that included the Oct. 31 week, when 26 sectors finished in the red and 12 wound up 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 20 weeks, more losses in 24 and were evenly split one week.

Other telecom week's best sector

Among specific sectors, other telecommunications rose 6.71% in the latest week to take the top spot away from automobiles, which had been the champion in the Oct. 31 week when it zoomed an astonishing 16.31%, helped by the news that the financial arms of the domestic Big Three carmakers were granted access to the Federal Reserve's new commercial paper facility, letting them issue short-term debt in the previously frozen market.

Consumer products (up 3.16%), diversified telecommunications (up 3.03%), cable/DBS (up 2.84%) and food, beverage and tobacco (up 2.82%) rounded out the latest week's Top Five list of the best-performing sectors.

Automobiles week's worst sector

On the downside, automobiles went from first, as noted, to worst, falling 6.72% to supplant insurance brokers as the cellar-dweller; the latter sector had an index-worst loss of 7.49% in the Oct. 31 week. The volatile autos group was hurt in the latest week by the news that there will be no federal up-front cash to facilitate a General Motors Corp. takeover of Chrysler LLC and the latter's hefty balance-sheet cash cushion, causing acquisition negotiations to wither. There were also terrible October sales numbers and, as the week ended, more big quarterly losses for GM and Ford Motor Co. Both suffered credit agency ratings downgrades in response to their severe rates of cash-burn.

Diversified financials (down 5.69%), real estate (down 2.33%), health-care services (down 0.93%) and property/casualty insurance (down 0.90%) rounded out the latest week's Bottom Five list of the worst-performing sectors. Diversified financials joined the autos in having migrated into the major-loss column; a week earlier, it had been among the Top Five with a 9.59% gain. On the other hand, real estate was among the big losers for a third straight week, having also been there the week before with a 6.85% loss and in the Oct. 24 week with an index-worst 8.72% drop.

Real estate year's worst sector

On a year-to-date basis, that repeat Bottom Five finish kept real estate at the bottom of the pile as worst 2008 performer, as its deficit widened to 45.35% from 44.05%.

Advertising-dependent media remained second-worst on the year, even though its cumulative loss narrowed to 41.16% from 42.34%.

Autos, with the biggest weekly loss in the index, as noted, tumbled two positions in the yearly standings, to third-worst from fifth previously, its loss for the year widening to 40.21% from 35.90%.

That let banks move up one notch, to just fourth-worst from third before, as its 2008 red ink lessened a little to 37.80% from an even 39%.

That, in turn, also pushed gaming, lodging and leisure up by one slot, as it moved up to fifth-worst from fourth before, its loss declining to 35.94% from 36.94%.

Health-care equipment and services tops for year

On the upside, with all sectors showing year-to-date losses for a fifth consecutive week, health-care equipment and services remained the best year-to-date performer - that is, the one with the smallest cumulative loss - which decreased to 6.78% from 8.19%.

Aerospace and defense held on to the No. 2 position, as its 2008 loss narrowed to 9.13% from 9.65%.

Credit insurance stayed third-best, although its loss increased to 10.04% from 9.66%.

Health-care facilities, not previously among the leaders, improved to fourth-best, as its 2008 loss narrowed to 11.18% from 12.42%.

That pushed the previous No. 4 sector, food and drug retailing, down by one position, to just fifth-best, although that sector's 2008 loss declined to 11.40% from 11.69%. The previous fifth-place holder, insurance brokerage, dropped from leadership contention, as its 2008 loss grew to 12.52% from 12.42% previously.

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