B of A High Yield Broad Market index up 0.20% on week; 2008 loss declines to 3.15%

By Paul Deckelman

New York, Aug. 11 - The Banc of America Securities High Yield index rose 0.20% in the week ended Friday, rebounding after two straight weeks of losses, including the 0.79% downturn seen in the previous week, ended Aug. 1.

That gain narrowed its year-to-date loss to 3.15% from 3.35% the week before, keeping it in between its peak level for the year, 1.86%, 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 - even with the latest weekly gain - has still now shown seven losses in the past nine weeks, including five straight at one point, starting in mid-June.

With 32 weeks now in the books, there have been 14 weekly gains, 17 losses and the one unchanged week.

Spread steady, total value lower

B of A analysts said the index's average spread over Treasuries stayed at 842 basis points, unchanged from 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 narrowed slightly to 11.71% from 11.72% the week before, its 2008 high point, while the 2008 low was 9.98% in the May 16 week.

The index tracked 1,548 issues of $100 million or more, down from 1,554 issues the week before, while its overall market value declined to $571.8 billion from $572.1 billion the week before, moving further back below the 2007 year-end total of $595.3 billion.

The latest week's total is well-below its 2008 peak of $614.9 in the May 23 week, though still a little above its' 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 BB rated credits made the best showing for a third consecutive week, gaining 0.26%, while the CCC rated bonds rose 0.20% and the single-B rated issues were up 0.14%.

In the prior week, when all three categories were in the red, the BBs led the way, relatively speaking, with a loss of just 0.07%, followed by the single-Bs, down 1.07%, while the CCCs brought up the rear with a 1.40% plunge - the second straight week in which the three categories finished in that particular order.

Positive sectors regain lead

In the latest week, 24 of the 37 active industry sectors into which B of A divides its high-yield universe were in positive territory and 13 sectors had negative returns. In the previous week, 19 sectors finished in the red, 17 were in the black, and the health care facilities sector was unchanged with a flat 0.00% reading. 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 15 weeks, more losses in 16, and were evenly split one week.

Autos week's top sector

Among specific sectors, automobiles had the week's best return, zooming 2.97% to grab the top spot away from the insurance brokers, which had won that honor the week before with a 0.80% return. The autos strongly shifted gears after spinning their wheels the previous two weeks, winding up parked among the Bottom Five worst-performing sectors with a loss of 4.81% in the Aug. 1 week and with a 1.19% deficit in the week ended July 24.

Banks (up 2.18%), diversified telecommunications (up 1.87%), food, beverage and tobacco (up 0.71%) and cable/DBS operators (up 0.69%) rounded out the latest week's Top Five list of the best-performing sectors.

It was the second week that the cablers had been in that elite grouping, having also been there the previous week with a 0.72% return. Banks, on the other hand, had been the absolute worst loser in the index the previous week, suffering an astonishing 10.16% loss.

Ad-dependent media week's worst sector

On the downside, advertising-dependent media lost an index-worst 1.63% in the latest week, displacing the banks as the cellar-dweller. The sector had also been among the Bottom Five the previous week with a 2.57% loss.

Textile and apparel (down 0.94%), health care services (down 0.87%), gaming, lodging and leisure (down 0.80%) and technology (down 0.61%) rounded out the latest week's Bottom Five list.

Banks year's worst sector

On a year-to-date basis, banking remained the worst loser for the year, despite its Top Five-worthy weekly performance, although its loss for 2008 so far narrowed a little to 16.25% from 18.04% the week before.

Ad-dependent media - the week's worst finisher, as noted - dropped by one position in the standings to second-worst from third previously as its cumulative loss gapped out to 15.11% from 13.70%.

Diversified financials, formerly just fourth-worst, fell one notch to third, although its loss for the year decreased to 13.09% from 13.59%.

Bottom Five finisher gaming, lodging and leisure accordingly also deteriorated by one slot, falling to fourth-worst from just fifth before, its loss widening to 12.12% from 11.41%.

Autos rode their week's best finish to a three-notch improvement in the year-to-date rankings, going from second-worst before to just fifth-worst, as the sector's 2008 loss narrowed to 11.85% from 14.39%.

Wireless telecom year's best group

On the upside, there was no change in the relative rankings of the best year-to-date sectors.

Wireless telecommunications remained the best-performing sector year to date, as its cumulative return rose to 7.53% from 6.90% previously.

Health care equipment and services was again second-best, its return widening to 5.76% from 5.45%.

Metals and mining held onto third-place, although its return eased slightly to 5.30% from 5.33%.

Health care facilities stayed fourth-best, as its return for the year firmed to 4.67% from 4.59%.

Electric utilities continued in fifth place as its 2008 return rose to 3.74% from 3.65%.

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