B of A High Yield Broad Market Index down 1.56% on week; 2008 loss grows to 24.49%

By Paul Deckelman

New York, Oct. 27 - The Banc of America Securities High Yield index fell by 1.56% in the week ended Friday - its sixth major loss in as many weeks, which followed the 3.11% retreat seen in the previous week ended Oct. 17.

The latest week's downturn caused the index's year-to-date loss to swell to 24.49% - its deepest deficit so far this year - from a year-to-date loss of 23.29% the week before, the previous widest 2008 loss. In contrast, the index's peak level for the year was a 1.86% cumulative gain seen over the two weeks ended May 16 and May 23.

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 has shown 14 losses in the past 20 weeks, including the latest six and another five straight from mid-June to mid-July.

With 43 weeks now in the books, there have been 18 weekly gains, 24 losses and the one unchanged week.

Spread keeps expanding

B of A analysts said the index's average spread over Treasuries gapped out to 1,605 basis points from 1,545 bps the week before, the previous wide point for the year.

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 rose to a new 2008 high of 18.77% from 18.35% the week before, the previous high for the year. The 2008 low was 9.98% in the May 16 week.

The index tracked 1,546 issues of $100 million or more, up from 1,540 issues the week before, although its overall market value declined to $437.9 billion, a new low point for the year, from $440.8 billion the week before, the previous 2008 low total.

The index's total value thus moves still 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 at 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), with all three groups once more finishing in the red, the CCC rated credits again had the worst loss, down 3.70%, followed by the BB rated bonds, which were down 1.72%, while the single-B rated paper did better, relatively speaking, with just a 0.44% loss.

It was the fifth consecutive week in which the CCC bonds lagged the other two groups, and the second straight week in which all three finished in that particular order; in the week ended Oct. 17, the CCCs lost 4.19% and the BBs were down 3.77%, while the single-Bs showed "only" a 2.02% loss. In the four weeks before that, the BB paper had consistently led the way.

Negative sectors rule

In the latest week, 33 of the 38 active industry sectors into which B of A divides its high-yield universe finished in negative territory, with five sectors in positive territory, for a sixth consecutive week of overwhelming negative dominance. It was also the second consecutive week for a 33-5 negative split.

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 19 weeks, more losses in 23 and were evenly split one week.

Real estate week's worst sector

Among specific sectors, real estate had an index-worst loss of 8.72%, taking over as the cellar-dweller from diversified telecommunications, which had lost 9.61% in the previous week.

Consumer durables/non-automotive (down 7.53%), consumer non-cyclical/other (down 5.18%), transportation (down 4.59%) and food and drug retail (down 3.51%) rounded out the latest week's Bottom Five list of the worst-performing sectors. It was a notable setback for the food and drug retailers, which had been among the Top Five best-performing sectors the previous week with a 0.53% gain.

Diversified telecom week's best sector

On the upside, diversified telecom made the long trip from worst, as noted, to first, with an index-leading 4.83% return in the latest week. It displaced the banks, which had been the previous week's champion with an explosive 19.00% gain in the Oct. 17 week, the volatile sector's second huge gain in three weeks. However, the banks - on a wild roller-coaster ride lately linked to the ongoing mortgage meltdown/credit crunch - had also been among the Bottom Five the week before that, ended Oct. 10, and in seven of the prior eight weeks, and had been the worst finishers in four of those. The latest week marked the first time since the week ended Aug. 15 that the banking sector was not found among either the Top Five or the Bottom Five.

Credit insurance (up 3.61%), electric utilities (up 3.16%), health care facilities (up 0.50%) and health care equipment and services (up 0.25%) rounded out the latest week's Top Five list.

Autos year's worst sector

On a year-to-date basis, the five worst-performing sectors were unchanged in their relative positions from the week before. The automobile sector's cumulative deficit of 44.89% versus 44.16% the previous week remains big enough to keep the autos consigned to the junkyard as clearly the worst 2008 performer.

Banks - even without making the weekly Bottom Five - remained the second-worst year-to-date performer with a 41.28% loss, wider than 39.56% the week before.

Advertising-dependent media stayed at third-worst as its loss widened to 40.40% from 38.34%.

Real estate - the index's worst weekly finisher, as noted - remained fourth-worst on the year, as its loss jumped out to 39.93% from 34.19%.

Diversified financials again ended fifth-worst, as the group's loss on the year widened to 35.26% from 33.85%.

Insurance brokerage tops for year

On the upside, with all sectors showing year-to-date losses for a third consecutive week, the insurance brokers remained the best performers on a relative basis with the smallest deficit, although even this more than doubled to 5.32% from 2.45% previously.

Top Five finisher health care equipment and services moved up several notches in the rankings to second-best on the year as its good weekly finish cut its 2008 loss to 8.14% from 8.36%.

That rise, plus its own Bottom Five finish, pushed food and drink retailing, which previously had been in second place, down one position to just third-best, as its loss widened to 9.49% from 6.06%.

Entertainment, in turn, also moved down by one slot to fourth as its loss widened to 9.84% from 8.26%.

Health care services, previously fourth-best on the year, moved down to fifth-best as its loss widened to 10.63% from 8.29%.

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