B of A High Yield Broad Market index up 0.31% on week; 2008 return grows to 1.74%

By Paul Deckelman

New York, June 9 - The Banc of America Securities High Yield index rose 0.31% in the week ended Friday, bouncing back from a loss of 0.43% in the previous week ended May 30. The index has now posted nine gains in the last 12 weeks, dating back to the beginning of its upsurge in mid-March, although recent results have been somewhat choppy; after seven straight weeks of advances, the index over the last five weeks has seen two gains, balanced by two weeks of losses, plus one flat 0.00% reading - neither a gain or a loss.

Even so, that stronger general trend seen since mid-March has represented a radical departure from the pattern of mostly weakness that had been seen before that since the start of the year. The index fell for the first three weeks of 2008, blipped back upward for two weeks, then headed back downward for three more weeks. After that, it alternated stretches of weakness and strength. But following two weeks in early March in which losses were recorded, the next seven weeks were all to the upside, after which the more inconsistent, choppy pattern was seen.

With 23 weeks now in the books, weekly gains hold a slight edge over losses, with 12 of the former against 10 of the latter, plus the one flat 0.00% reading.

On a year-to-date basis, the index's return rose to 1.74% in the week ended Friday, up from the prior week's 1.43%. The cumulative return is holding a bit below its high point for 2008 so far of 1.86%, reached in the week ended May 16 and repeated in the following week ended May 23. The year-to-date return has only been in the black since late April after having spent the first 16 weeks of 2008 languishing in the red; the index hit its low point, a 4.15% cumulative loss, in the week ended March 14, after which it began to turn back upward. In 2007, the index compiled a final cumulative return of 1.85%, with 32 weekly gains against 20 losses, swinging between a high of 4.72% seen about a year ago and a low of a 0.25% loss last August. That 2007 return, in turn, was far smaller than the index's robust 2006 finish of 11.89%.

Spread widens, yield-to-worst declines

B of A analysts said that the index's average spread over Treasuries was 683 basis points, having widened from the previous week's 672 bps, the tight point for the year so far. However, the spread remains well in from the 862 bps level seen in the March 14 week, the wide point for 2008 so far. Spreads so far this year have been notably wider than the 613 bps mark at which the index ended 2007, as well as even its 2007 wide point of 621 bps.

The index's yield to worst, after having risen the week before to 10.16% from the 10.02% reading seen in the week ended May 23, declined in the latest week to 10.09%. It remains somewhat above its low point for the year so far of 9.98% seen in the week ended May 16, but also remains well below its high point for the year, 11.16%, seen in the March 14 week.

The index tracked 1,569 issues of $100 million or more, down from 1,572 issues the week before, while its overall market value rose to $611.2 billion from $610.4 billion previously. Its total valuation remains above the 2007 year-end total of $595.3 billion, which was reached on 1,568 issues - a valuation mark it only matched and surpassed for the first time this year in the week ended May 2. B of A sees the index as a reliable proxy for the high-yield universe, which by some estimates is around $1 trillion in value.

Upper tier back on top

On a credit-quality basis, the uppermost of the three credit tiers into which B of A divides the HY Broad Market Index - those issues rated BB and BB+, comprising 20.20% of the index - had the best performance, returning 0.89%. This was followed by the lowest of the tiers - those issues rated B- and below, accounting for 36.12% of the index - which was up 0.42%. The middle tier - those issues rated BB-, B+ and B, making up 43.68% of the index - brought up the rear with a loss of 0.04%.

The latest week marked the second week in the last three in which the upper tier has lived up to its name and turned in the best showing, and the second straight week in which the middle tier has finished at the bottom of the pile - breaking a pattern seen in the previous six weeks, when it ended sandwiched between the two other tiers. In the week ended May 30, when the three tiers all posted losses for the first time since the March 14 week, the lower tier had the smallest loss of 0.23% - the seventh week in the prior 10 in which it led all the tiers - followed by the upper tier, which lost 0.41%, and then the middle tier with a 0.59% loss. The latest week marked a continuation of the recent move away from the pattern of upper-tier weakness that had been seen earlier in the spring; through the May 16 week, the top tier was anything but that, finishing dead last in six weeks out of the previous eight, going back to mid-March.

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 issues that are not rated), CCC rated paper - which includes many, but not all, of the lower-tier credits - did the best, up 0.83%. BB rated bonds - the upper tier partially, but not completely, overlaps this subset - followed at 0.54% and B rated debt - similar to, but not exactly the same as the middle tier - lagged behind with a 0.05% loss. This was the same order of finish seen in the previous week, when all three categories showed losses, also for the first time since the March 14 week, and all were tightly-spaced, within a few hundredths of a percentage point, with the CCC bonds down 0.40%, the BB bonds off by 0.42% and the B bonds losing 0.45%.

The B of A analysts noted that five new issues were priced last week, totaling $1.775 billion, versus four new issues totaling $1.2 billion the previous week. On a year-to-date basis, 60 issues have priced, totaling $30.5 billion.

The analysts also noted that weekly reporting high-yield mutual funds saw an inflow of $264.024 million in the week ended Wednesday, according to statistics compiled by AMG Data Services. That 10th consecutive weekly inflow followed the $25.6 million cash infusion seen in the previous week. On a year-to-date basis, net inflows among the weekly reporters now total $1.877 billion.

Positive sectors regain control

In the latest week, 24 of the 40 industry sectors into which B of A divides its high-yield universe were positive territory, 13 sectors had negative returns and three sectors had flat 0.00% readings, neither a loss nor a gain. However, it should be noted that two of these latter sectors - credit insurance and leisure equipment and products - are relatively new sectors created in the sector restructuring that took place in 2006, but even at this relatively late date they still do not have any issues represented in them. They were joined with a flat reading in the latest week by the established pipeline sector. The latest week's breakdown was in sharp contrast to the previous week, when 31 sectors finished in the red, seven sectors were in the black and the two newer sectors had flat readings.

It also represented return to the recent pattern of mostly wins by the positive sectors, which has now seen positive breakdowns - usually overwhelmingly so - in 10 weeks out of the last 12. That trend, in turn, has been a stark departure from the hugely negative trend that had been seen for most of the year before that. Sectors showing gains continue to hold an edge on the year to date, with 13 positive weeks versus 10 negative ones in the 22 weeks since the start of the year.

Wireless telecom is week's best sector

The wireless telecommunications sector easily had the best return in the latest week, jumping 5.80% to grab the top spot away from the previous week's champion, the insurance brokers, which had turned in an index-best 0.37% return in the May 30 week. The B of A analysts noted that the sector's strength - which also gave a boost to some of the other telecom groupings - was primarily driven by last week's news of the Verizon Wireless-Alltel Corp. acquisition deal, which pushed Alltel bonds up by nearly 30 points.

Diversified telecom (up 3.10%), cable/DBS operators (up 1.10%), wireline telecom (up 0.98%) and life/health insurance (up 0.74%) rounded out the latest week's Top Five list of the best-performing sectors in the index. It was the second consecutive week in that select circle for cable/DBS, which also made it the week before with a 0.29% return.

Life/health insurance, meanwhile continued to bounce wildly between the Top Five list and the Bottom Five list of the worst-performing sectors in the index. The insurers have now been in the Top Five twice in the last three weeks and three times within the last five weeks, including the May 23 week when they led all of the sectors with a 1.44% return. However, in the May 30 week, the volatile sector had been in the Bottom Five with a 1.28% loss, the second week in three and the fifth week out of the prior seven in which they had been among the biggest losers.

Automobiles is week's worst sector

On the downside, automobiles lost 0.83% to repeat as the index's worst-performing sector; the autos had also been the cellar-dweller the week before with an index-worst 1.89%. It was the group's third consecutive week among the Bottom Five, as the autos also made it there in the May 23 week with a 0.94% plunge.

Other healthcare (down 0.43%), aerospace and defense (down 0.33%), banks (down 0.32%) and electric utilities (down 0.30%) rounded out the latest week's Bottom Five list. It was the second straight week there for the banks and the electric utilities, which had also been among the worst laggards the week before with losses of 1.77% and 0.82%, respectively.

Wireless telecom now top 2008 sector

On a year-to-date performance basis, wireless telecom - not among the previous leaders - took over the top spot on the strength of its spectacular index-leading weekly performance, its cumulative return zooming upward to 8.94% from 2.96% the week before. That was good enough to push long-time prior leader banking down to just second-best; hurt by its return visit to the Bottom Five this past week, the banks' 2008 return retreated to 8.25% from 8.59%. Cable/DBS - also not among the previous leaders - jumped into third place, helped by its Top Five showing, as its total return expanded to 5.40% from 4.25% the week before.

Consumer durables/non-automotive moved up one notch in the rankings to fourth-best, as its 2008 return expanded to 5.11% from 4.71%. Healthcare facilities - previously the second strongest performer year-to-date - tumbled three positions to just fifth-best, as its return for the year only grew slightly, to 5.10% from 5.02%. Pipelines - which returned a flat 0.00% reading on the week - fell three positions, from third place previously to sixth place, as its 2008 return held steady at an even 5.00%.

Healthcare equipment and services, previously fourth strongest on the year with a 4.75% return, and metals and mining, previously Number-Six at 4.44%, fell from leadership contention with new yearly returns of 4.69% and 4.59%, respectively.

Ad-dependent media now worst 2008 sector

The advertising-dependent media and life/health insurance sectors continued to trade places all the way down at the bottom of the pile; ad-dependent media was the worst-performing 2008 sector for the second time in three weeks, even as its cumulative loss actually declined slightly to 4.91% from 5.03% the week before. Life/health insurance, which in the May 30 week had held that dubious honor for two weeks out of the prior three, managed to climb off the absolute bottom to only second-worst, given a boost by the volatile sector's weekly Top Five performance that cut its 2008 loss to 4.34% from 5.04%.

Gaming, lodging and leisure remained third-worst on a year-to-date basis, although its loss narrowed a little to 4.29% from 4.38%. Insurance brokerage also had a narrower cumulative loss - 2.34% versus 2.44% previously - but remained fourth-worst for the year. Paper and forest products was stuck at fifth-worst, even as its loss fell to 1.51% from 1.70%. Real estate fell to sixth worst on the year, its loss expanding to 0.28% from 0.20%. The sector's slide to among the worst was chiefly because the previous week's sixth-worst finisher, diversified telecom, catapulted itself well away from the year's worst losers with a Top Five weekly performance that got it back into the black for 2008 with a 1.47% return, versus a 1.58% year-to-date loss the week before

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.