B of A High Yield Broad Market Index down 0.28%, year-to-date loss grows to 3.31%

By Paul Deckelman

New York, May 23 - The Banc of America Securities High Yield Broad Market Index fell for the second straight week, the fifth week out of the last six and the eighth week out of the last 10 in the week ended May 19, declining 0.28%. That followed its loss of 0.90% recorded the week before and continues the generally negative trend of the last two months.

The index's year-to-date loss grew to 3.31% from 3.04% the week before.

The index's spread over Treasuries increased to 463 basis points from 448 bps the previous week, while its yield to worst likewise widened to 8.49% from 8.38%.

The more narrowly focused High Yield Large Cap Index, which essentially mirrors the patterns seen in the HY Broad Market Index, also retreated for a second straight week, losing 0.20%, on the heels of the 1.11% loss the week before, which was a return to its previously negative recent pattern. Its year-to-date loss meantime widened to 3.88% from 3.69% the week before. HY Large Cap's spread over Treasuries in the most recent week rose to 448 bps from 437 bps the previous week, and its yield to worst increased to 8.37% from 8.29% previously.

In the latest week, the more inclusive HY Broad Market Index tracked 1,671 issues of $100 million or more, well down from 1,687 the week before, due to the redemption at maturity of a number of issues at mid-month, while the overall market value of the issues accordingly slid to $511.5 billion from $517.1 billion the previous week.

The HY Large Cap Index, representing the most liquid portion of the high-yield world, meantime tracked 607 issues of $300 million or more, off from 610 the week before, as total market value slipped to $312.2 billion from $313.4 billion. B of A sees both as reliable proxies for the $750 billion high-yield universe.

Top credit tier outperforms

On a credit-quality basis, the uppermost of the three credit tiers into which B of A divides its index - those issues rated BB+ and BB, comprising 17.20% of the index - had the best return (i.e., the smallest loss), easing just 0.08%. This was followed by the middle tier - those issues rated BB-, B+ and B, making up 46.12% of the index - which was down 0.14%. Bringing up the rear was the lowest of the tiers - those issues rated B- and below, accounting for 36.68% of the index - which fell 1.53%.

It was the second straight week and the fifth week in the last six in which the tiers finished in that order, and it was also the sixth week in the past seven in which the lowest credit tier has now also had the worst return of the three tiers, no matter who else was on top. In the week ended May 12, the upper tier had the smallest loss, 0.62%, followed by the middle tier, which was down 0.73%, and the lower tier, which fell 1.26%.

Some 19 out of the 23 industry sectors into which B of A divides its high-yield universe had negative returns in the most recent week, against just four sectors in the black.

That represented a slight softening of the overwhelmingly negative tone seen in the previous week, when all 23 sectors were in the red, but it is generally in line with the pattern seen in most of the recent weeks in which the HY Broad Market index has been on the downside, with the vast majority of sectors showing losses, and a clean sweep of all 23 in some of those weeks, including the May 12 week.

B of A analysts said that even as the secondary market closed in negative territory this past week, "the fall would have been significantly deeper were it not for some recovery in most sectors on Wednesday [May 18] and broad-based recovery on Thursday [May 19]." They also noted the continued "uninspiring" primary market performance, with just three deals totaling $350 million in proceeds having priced during the week through Thursday, against four deals totaling $555 million which had priced in the equivalent period the week before. They also observed that the weekly reporting high-yield mutual funds, seen as a gauge of market liquidity, showed their 14th consecutive outflow in the week ended last Wednesday, as $452 million more left them than came into them.

Entertainment worst for week

Entertainment was the worst-performing sector in the week, down 0.72%, with energy just a touch better, with a 0.71% loss. It was the second week in the last three in which entertainment had the biggest loss, although in the week ended May 12 transportation was the cellar-dweller with a 2.34% loss.

Utilities (down 0.62%), business services (off 0.59%) and chemicals (down 0.58%) rounded out the Bottom Five list of the worst-performing sectors in the most recent week. Business services had also been among the Bottom Five the week before, with a 1.12% loss.

Transportation tops for week

Transportation - which, as noted, had the biggest loss in the week ended May 12 - went from worst-to-first in the week ended May 19, recording an index-best 0.58% return, presumably in response to airline industry consolidation buzz in the wake of the planned combination of the bankrupt US Airways Group and America West Airlines, as well as softening world crude oil prices, considered a reliable leading indicator of future jet fuel costs. Transportation takes over from the previous week's leader, healthcare, which had just a 0.17% loss, the smallest of any sector in an overwhelmingly negative week.

Consumer non-durables were up 0.37%, PCS/cellular names gained 0.21%, wireline telecommunications was up 0.14% and lodging had a relatively small 0.08% loss to round out the latest week's Top Five list of best performers. PCS/cellular had also been in the Top Five the week before, with a relatively modest 0.31% loss, and has now been in the Top Five for three consecutive weeks.

Transportation worst for year

On a year-to-date basis, the transportation sector's index-leading performance in the latest week cut its index-worst 2005 return, though not by much, to 12.43% from 12.94% the week before.

Consumer durables cumulative deficit meanwhile worsened to 8.68% from 8.26% previously. Paper and packaging's year-to-date loss grew to 5.39% from 5.25% previously, while Bottom Fiver utilities' deficit ballooned out to 5.28% from 4.70% previously.

PCS/cellular tops for year

On the upside, Top Fiver PCS/cellular's modest weekly rise was good enough to push it into the 2005 top spot, with a 1.47% year-to-date return, up from 1.25% the week before. The wireless operators vaulted past the finance sector, whose previously index-leading cumulative return fell to 1.23% from 1.62%.

But as has now been the case for five straight weeks, no other industry sectors are in the black on a year-to-date basis.

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