B of A High Yield Broad Market index dives 2.94% on week; 2008 loss gaps out to 26.23%

By Paul Deckelman

New York, Nov. 17 - The Banc of America Securities High Yield index plunged by 2.94% in the week ended Friday, breaking a small winning streak of two straight gains, including the 0.56% advance seen in the previous week, which ended Nov. 7. The latest loss was the seventh downturn in the last nine weeks, including a skid of six straight weekly losses that ended in the week ended Oct. 24.

The latest week's loss caused the index's year-to-date loss to bulge out to 26.23%, its worst point of the year so far, from the previous week's even 24%, which was modestly below the 24.49% loss seen in the Oct. 24 week, the previous 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 15 losses in the past 23 weeks, including the six straight from mid-September to mid-October, and another five straight downturns from mid-June to mid-July.

With 46 weeks now in the books, there have been 20 weekly gains, 25 losses and the one unchanged week.

Spread balloons out

B of A analysts said the index's average spread over Treasuries surged to 1,718 basis points, a new wide point for the year, from 1,620 bps the week before, the previous wide point.

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 rose to 19.69% from 18.87% the week before, setting a new high for the year. The previous high point was 18.92% in the week ended Oct. 31. The 2008 low so far was 9.98% in the May 16 week.

The index tracked 1,540 issues of $100 million or more, up marginally from 1,539 issues the week before, although its overall market value slid to $420.2 billion, a new low point for the year, from $435.8 billion the week before and from the previous low point for the year, $434.3 billion in the Oct. 31 week.

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 categories finishing in the red this week, the CCC rated credits nosedived by 5.33%, while the single-B rated bonds lost 3.05% and the BB- rated paper had the best showing, relatively speaking, down "only" 1.59%.

It was the second straight week in which the three groups finished in that exact order and the seventh week in the last eight in which the CCC bonds have lagged the other two groups. In the week ended Nov. 7, the CCCs fell by 1.27%, while the single-Bs were up 0.14% and the BBs led the way with a 1.97% advance.

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 the positive. It was the eighth week in the past nine of negative dominance - a trend broken only in Nov. 7 week, when 28 sectors finished in the black and 10 wound up in the red.

At the beginning of the year, most weeks saw negative sectors dominate, but the breakdown more or less evened out after that. To date, sectors have shown more gains in 20 weeks, more losses in 25 and were evenly split one week.

Technology week's worst sector

Among specific sectors, technology was the week's worst-performing sector with a loss of 8.69%, taking over that unwanted honor from automobiles, the previous week's cellar-dweller with a 6.72% decline that week; the volatile autos had gone from first to worst in the Nov. 7 week, having led the index the week before that one, ended Oct. 31, with a robust 16.31% gain. The tech names fell as the sector was roiled by computer chip king Intel Corp.'s warning that it now expects fourth-quarter revenue of about $9 billion - anywhere from $1 billion to nearly $2 billion less than its previous projections.

Diversified financials (down 7.33%), credit insurance (down 6.25%), diversified telecommunications (down 6.12%) and advertising-dependent media (down 4.95%) rounded out the latest week's Bottom Five list of the worst-performing sectors. It was the second straight week among the bigger losers for diversified financials, which also wound up there the week before with a 5.69% loss. However, it was a sharp reversal for diversified telecom, which had been among the Top Five best-performing sectors the previous week with a 3.03% gain.

Other telecom week's best sector

On the upside, other telecommunications repeated as the best-performing sector, posting a 1.20% gain on top of its index-leading 6.71% advance in the Nov. 7 week.

Banks (up 0.99%), aerospace and defense (up 0.80%), health care services (up 0.76%) and entertainment (up 0.51%) rounded out the latest Top Five list. Health care services had been among the Bottom Five the week before, when it declined by 0.93%.

Real estate year's worst sector

On a year-to-date basis, real estate remained at the bottom of the pile as worst 2008 performer, as its deficit widened to 47.90% from 45.35%.

Bottom Five finisher advertising-dependent media remained second-worst on the year, as its cumulative loss widened to 44.07% from 41.16%.

Autos stayed parked in the third-worst position, its loss for the year widening to 42.52% from 40.21%.

Repeat Bottom Fiver diversified financials - not previously among the year's biggest losers - fell into that category as it tumbled to a 37.99% loss from 33.08% the week before, bad enough for fourth-worst.

Gaming, lodging and leisure remained fifth-worst on the year, as its cumulative loss widened to 37.74% from 35.94% before.

The diversified financials' continued slide, plus its own Top Five-worthy weekly performance, allowed banking - the previous week's fourth-worst sector for the year - to put some distance between itself and the bigger losers; the banks' year-to-date loss narrowed to 37.19% from 37.80%.

Health care equipment tops for year

On the upside, with all sectors showing year-to-date losses for a sixth consecutive week, health care equipment and services remained the best year-to-date performer - that is, the one with the smallest cumulative loss - which still did rise to 7.68% from 6.78% previously.

Top Five finisher aerospace and defense held onto the No. 2 position, as its 2008 loss narrowed to 8.40% from 9.13%.

Fellow Top Fiver entertainment, not among the previous leaders, pushed up to third-best on the year, as its loss shrank to 11.76% from 12.22% before.

Food and drug retailing, previously fifth-best on the year, improved by one notch to fourth-best, even though its loss for the year widened to 11.97% from 11.40%.

Wireless telecom - like entertainment not among the previous year-to-date leaders - grabbed fifth place, even though its cumulative loss grew to 12.80% from 11.82%, as two other sectors, credit insurance and health care facilities, fell out of leadership contention as their losses widened more.

Bottom Fiver credit insurance lost its former grip on third place, its loss growing by more than 50% to 15.66% from 10.04%, while former fourth-best holder health care facilities' red ink increased to a 14.01% loss from 11.18%.

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