Bear Stearns High Yield Index ends 2006 with 11.65% total return

By Paul A. Harris

St. Louis, Jan. 2 - The Bear Stearns High Yield Index posted an 11.65% return for all of 2006 after a 1.13% gain for the month of December.

As of the Dec. 31 close, the yield to worst stood at 8.19% while the yield-to-worst spread ended the year at 346 basis points.

All 12 industry sectors posted positive returns for the year.

The consumer cyclical sector turned in the best performance at 15.73%.

It was one of seven industry sectors to post double-digit returns for 2006.

The others, in descending order, were:

* The media sector at 13.20%;

* The transportation sector at 12.37%;

* The telecommunication sector at 11.93%;

* The capital goods-manufacturing sector at 11.03%;

* The technology sector at 10.76%; and

* The basic materials sector at 10.72%.

The underperformer among the industry sectors was health care, which nevertheless generated a 5.05% return on the year.

It perhaps bears mentioning that health care's services-diagnostic component was the only sub-sector in the entire index to see a negative return for 2006, finishing the year at negative 10.36%

As for outperformers among the sub-sectors, five of them finished the year having generated returns of greater than 20%.

Those sub-sectors are listed in descending order, followed by their respective market weights relative to the percentages of the index composite that each one represents, in parentheses:

* The transportation sector's airlines component, posting a 36.77% return at the Dec. 31 close, was the outperformer of the index and the only sub-sector to generate a return of greater than 30% on the year (0.03% of the composite);

* Telecommunication's long distance component was second at 24.22% (1.17%);

* The consumer cyclical sector's automobile manufacturing related component was third at 23.0% (the largest sub-sector in the index at 14.33%);

* The telecommunication sector's ESMR & PCS component at 21.48% (0.46%); and

* The media sector's North American cable component at 20.59% (3.88%).

With regard to credit quality, C rated paper, which represents 19.77% of the composite, turned in the strongest 2006 performance, returning 18.81% on the year.

Meanwhile, only a single basis point separated the two underperforming credit sectors. Non-rated junk bonds, which make up only 0.77% of the index composite, were the out-and-out underperformer at 9.19%. However the Ba3/B1 class, representing 27.46% of the composite, were only a point better at 9.20%.

Single-B rated paper, the largest credit sector in the index at 47.66% of the composite, returned an even 11%.

Bonds at the top of the credit spectrum, BB rated paper, which represents 31.80% of the composite, ended 2006 with a 9.63% return.

The index ended the year with a market value of $613.65 billion, and the issue count stood at 1,629 issues.

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