B of A High Yield Broad Market index up 0.06% on week; 2008 loss narrows to 2.71%

By Paul Deckelman

New York, Sept. 8 - The Banc of America Securities High Yield index rose 0.06% in the week ended Friday, its second consecutive gain. The index had moved up by 0.24% in the previous week, ended Aug. 29.

The latest advance narrowed the index's year-to-date loss to 2.71% from 2.76% the week before. The year-to-date deficit remains in between the index's peak level for the year, 1.86%, seen over 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 including its latest gains - has still shown eight losses in the past 13 weeks, including five straight at one point, starting in mid-June.

With 36 weeks now in the books, there have been 17 weekly gains, 18 losses and the one unchanged week.

Spread at new 2008 wide point

B of A analysts said the index's average spread over Treasuries ballooned out to 883 basis points from 860 bps the week before; that measure now stands at its widest point of the year, eclipsing the old mark of 862 bps in the March 14 week.

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 hit a new 2008 high at 11.82%, out from 11.76% the week before and from its previous high for the year at 11.77% in the week ended Aug. 22. The 2008 low was 9.98% in the May 16 week.

The index tracked 1,537 issues of $100 million or more, down from 1,546 the week before, while its overall market value fell to $567.5 billion from $572.2 billion the week before, hitting a new low point for the year.

The previous 2008 low total was $569.1 billion in the March 14 week. The index's total value thus moves 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 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 B rated credits turned in the best performance, up 0.15% on the week, followed by the CCC rated bonds, which were up 0.05%. The BB rated paper brought up the rear with a 0.06% loss.

That was a reversal from the week before, when the BBs were on top for a second straight week and for the fifth week in the previous six, gaining 0.34%, while the Bs rose 0.31% and the CCCs were unchanged at 0.00% - the second straight week in which the latter group had underperformed the other two groups.

Positive sectors keep lead

In the latest week, 23 of the 38 active industry sectors into which B of A divides its high-yield universe finished in positive territory, 14 in negative territory, and one - diversified financials - finished unchanged from the week before, with a flat 0.00% reading. In the previous week, 30 sectors were in the black and eight were in the red.

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 18 weeks, more losses in 17, and were evenly split one week.

Property-casualty insurance week's top sector

Among specific sectors, property-casualty insurance rose an index-best 0.78%, taking over the top spot from the previous week's champion, diversified telecommunications, which had led all sectors with a 1.74% gain that week, its second finish on top in three weeks.

Health care services (up 0.63%), consumer durables/non-automotive (up 0.57%), chemicals (up 0.55%) and retail (up 0.44%) rounded out the latest week's Top Five list of the best-performing sectors. It represented a sharp turnaround for both the retailing sector and non-automotive consumer durables; those sectors had been among the Bottom Five worst-performing sectors the previous week with losses of 0.66% and 0.37%, respectively.

Credit insurance week's worst sector

On the downside, the credit insurance sector - a relatively recent addition to the index - was the single worst-performing sector, plunging 2.41% on the week to take over as the cellar-dweller from the banks, which had finished at the bottom for a second consecutive time in the Aug. 29 week, when it lost 1.75%. Banks, however, remained among the Bottom Five for a third straight week with a 0.53% loss.

Other health care (down 0.77%), advertising-dependent media (down 0.74%) and diversified telecom (down 0.50%) rounded out the latest week's Bottom Five. It was a distinct deterioration for the latter group, which, as noted, had led the index the week before, and also for ad-dependent media, which had previously made the Top Five over two consecutive weeks, including its 0.58% gain in the Aug. 29 week.

Banks 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 five consecutive weeks. Bottom Five finisher banking remained the biggest loser for the year so far, as its 2008 loss grew to 21.88% from 21.46% the week before.

Fellow Bottom Fiver ad-dependent media, back in its accustomed weekly position after several weeks in the Top Five, was again second-worst on the year, as its cumulative loss of widened to 14.61% from 13.97% the previous week.

Diversified financials remained third-worst, while its loss for the year was little changed at 13.76%.

Gaming, lodging and leisure stayed at fourth-worst, even as its loss for the year narrowed slightly to 12.61% from 12.67%.

Automobiles again languished as the fifth-worst sector, although the grouping's year-to-date loss decreased to 11.44% from 11.66%.

Wireless telecom tops for year

On the upside, wireless telecom remained the best-performer year to date, although its cumulative return pulled back to 9.26% from 9.55% previously.

Health care equipment and services was again second-best, its return widening to 6.70% from 6.45%.

Health care facilities moved up one position in the rankings, to third-best, its return for the year at 5.66%, up from 5.21%. Metals and mining meantime fell back one notch, to only fourth-best, as its return eased to 5.38% from 5.46%.

Electric utilities - which the week before had relinquished fifth place to diversified telecom - took it back in the latest week, as its return for the year grew to 4.44% from 4.19% previously. Bottom Fiver diversified telecom meanwhile fell out of leadership contention, as its return shrank to 4.11% from 4.64% previously.

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