B of A High Yield Broad Market Index falls 1.61% on week; 2008 loss widens to 31.16%

By Paul Deckelman

New York, Dec. 1 - The Banc of America Securities High Yield Broad Market Index lost 1.61% in the week ended Friday, its third straight sizable loss, including the 5.15% nosedive seen in the previous week, which ended Nov. 21. The latest loss was the ninth downturn in the last 11 weeks, including a skid of six straight weekly losses from mid-September to mid-October.

The latest week's loss caused the index's year-to-date deficit to widen out to 31.16% - its worst point of the year so far - from 30.03% the week before, the largest previous shortfall. 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. It 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 17 losses in the past 25 weeks, including the aforementioned six straight at the start of fall and before that, another five straight downturns from mid-June to mid-July.

With 48 weeks now in the books, there have been 20 weekly gains, 27 losses and the one unchanged week.

Spread balloons out

B of A analysts said the index's average spread over Treasuries surged to 1,986 basis points, a new wide point for the year, from 1,911 bps the week before, the previous wide point.

The spread's tightest level of the year was 651 bps in the week ended June 13, although even then, the year's spreads had been notably wider than the 613 bps seen at the end of 2007.

The index's yield to worst meantime rose to 21.88%, a new high point for the year, from 21.29% the week before, the previous high point. The 2008 low so far was 9.98% in the May 16 week.

For a third consecutive week, the index tracked 1,540 issues of $100 million or more, unchanged from the week before, while its overall market value fell to $390 billion, a new low point for the year so far, from $398.9 billion the week before, its previous low point.

The index's total value thus remains well below the 2007 year-end total of $595.3 billion, to say nothing of its peak level for this year at $614.9 billion, seen 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 categories again finishing in the red this week, the CCC rated credits fell by 1.87%, while the single-B rated bonds lost 1.77% and the BB-rated paper was down by 1.45%.

It was the fourth straight week in which the three groups finished in that exact order and the ninth week in the last 10 in which the CCC bonds have lagged the other two groups. In the week ended Nov. 21, the CCCs plunged by 8.34%, while the single-Bs dropped 5.38% and the BBs led the way - relatively speaking - with "only" a 3.41% loss.

Negative sectors rule

In the latest week, 28 of the 38 active industry sectors into which B of A divides its high-yield universe finished in negative territory, with nine sectors in the positive and one sector - cable/DBS - unchanged with a flat 0.00% reading. It was the ninth week in the past 10 of negative dominance, including the preceding week, when 37 sectors finished in the red and just one wound up in the black.

At the beginning of the year, most weeks saw negative sectors rule, but the breakdown more or less evened out for a while after that, although negatives have again dominated lately. To date, sectors have shown more gains in 20 weeks, more losses in 27 and were evenly split one week.

Ad dependent media week's worst sector

Among specific sectors, advertising-dependent media, which retreated 7.61%, was the week's worst-performing sector, taking that unwanted honor away from automobiles, the previous week's cellar-dweller with a 16.86% plunge.

Gaming, lodging and leisure (down 5.69%), electric utilities (down 4.09%), technology (down 3.86%) and consumer products (down 3.70%) rounded out the latest week's Bottom Five list of the worst-performing sectors.

Diversified telecom week's best sector

On the upside, the diversified telecommunications sector returned an index-best 7.47% to take the top spot away from property/casualty insurance, which had been the champion the previous week with a 0.95% gain - the sole sector to finish in the black that week. It was a smart turnaround for the diversified telecoms, which had been among the Bottom Five in the two previous weeks, with major losses of 15.98% in the Nov. 21 week and 6.12% in the week ended Nov. 14 - although the volatile group had also been among the Top Five best-performing sectors the week before that, ended Nov. 7, with a 3.03% gain.

Automobiles (up 6.88%) also bounced back strongly from the yawning index-worst loss that the sector had posted the previous week, as noted, helped by suggestions and speculation, including a mid-week Deutsche Bank research note, that General Motors Corp., Ford Motor Co. and Chrysler LLC might be able to convince Congress this week to give the hard-hit industry a badly needed $25 billion bailout to keep the Big Three out of bankruptcy, which in turn would also help the companies that supply those OEMs with parts.

Retail (up 2.17%), other telecom (up 2.11%) and aerospace and defense (up 0.53%) rounded out the latest week's Top Five list.

Ad-dependent media year's worst sector

The ad-dependent media sector was not only the week's worst performer, as noted, but it also fell two positions in the rankings to the absolute back of the pack as worst sector on a year-to-date basis as well, versus only third-worst previously; its 2008 loss bulged out to 51.15% from 47.13% the week before.

Real estate remained second-worst on the year as its cumulative loss widened to 50.65% from 49.48% previously.

Autos, powered by the sector's strong Top Five showing for the week, moved up two notches in the standings to just third-worst from the absolute worst the week before, as its 2008 loss declined to 48.92% from an index-worst 52.51%.

Bottom Fiver gaming, lodging and leisure - not among the previous week's biggest losers - tumbled to fourth-worst on the year as its cumulative loss expanded to 43.58% from 40.18% before.

That pushed the diversified financials sector up one position to just fifth-worst from fourth previously, its loss for the year increasing relatively modestly to 43.10% from 42.16% in the Nov. 21 week. The previous fifth-worst sector, banks, actually had a slightly reduced loss of 41.61%, versus 41.63% before.

Aerospace and defense tops for year

On the upside, with all sectors showing year-to-date losses for an eighth consecutive week and, for the first time, all of those deficits in double-digits, Top Fiver aerospace and defense moved up one position in the rankings to the top spot from number two, as its loss for the year declined to 11.70% from 12.16%.

It switched places with the previous number one, health care equipment and services, which fell one notch to just second-best as its 2008 loss widened to 11.82% from 9.58%.

Food and drug retail held onto to third place, even as its cumulative loss grew to 14.49% from 13.83% before.

Health care services moved up one notch to claim fourth place as its loss for the year actually decreased a little to 15.71% from 15.76% the week before. It switched positions with entertainment, which fell to only fifth-best from fourth as its loss widened to 16.44% from an even 15% previously.

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