B of A High Yield Broad Market Index falls 0.72% on week; 2008 loss widens to 32.76%

By Paul Deckelman

New York, Dec. 15 - The Banc of America Securities High Yield Broad Market Index lost 0.72% in the week ended Friday, its fifth straight loss, including the 1.62% decline seen in the previous week, which ended Dec. 5. The latest downturn was the 11th in the last 13 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 to 32.76% - its worst point of the year so far - from 32.27% 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 19 losses in the past 27 weeks, including the aforementioned six straight at the start of the fall and before that, another five straight downturns from mid-June to mid-July.

With 50 weeks now in the books, there have been 20 weekly gains, 29 losses and the one unchanged week.

Spread widens

B of A analysts said the index's average spread over Treasuries rose to 2,107 basis points, a new wide point for the year, from 2,078 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 were notably wider than the 613 bps seen at the end of 2007.

The index's yield to worst meantime rose to 22.74%, a new high point for the year, from 22.58% the week before, the previous high point. The 2008 low so far was 9.98% in the May 16 week.

In the latest week, the index tracked 1,515 issues of $100 million or more, down from 1,521 issues the week before, while its overall market value fell to $371.8 billion, a new low point for the year so far, from $378.4 billion the week before, its previous low point.

The index's total value thus moves even 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, 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 1.72%, while the single-B rated bonds lost 0.73% and the BB-rated paper was down by just 0.11%. It was the sixth straight week in which the BBs outperformed the other two groups, as well as the fifth week in the past six in which the three groups finished in that exact order and the 10th week in the last 12 in which the CCC bonds lagged behind.

In the week ended Dec. 5, the single-Bs fell by 2.44%, while the CCCs lost 1.10% and the BBs led the way - relatively speaking - with "only" an even 1.00% loss.

Negative sectors rule

In the latest week, 24 of the 38 active industry sectors into which B of A divides its high-yield universe finished in negative territory, with 14 sectors in the positive. It was the 11th week in the past 12 of negative dominance, including the preceding week, when 29 sectors finished in the red and nine 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 29 and were evenly split one week.

Diversified telecom week's worst sector

Among specific sectors, diversified telecommunications went from first to worst, falling 4.34% to take the unwanted honor of being the week's worst-performing sector away from the prior week's cellar-dweller, chemicals, which had a 5.74% loss in the Dec. 5 week. In that same week, the diversified telecoms had returned 2.81% to lead all sectors for a second consecutive week, on top of the index-best 7.47% gain posted in the week ended Nov. 28. But the volatile sector has now spent three weeks out of the past five among the Bottom Five worst-performers.

Diversified financials (down 4.03%), insurance brokers (down 2.81%), consumer durables/non-automotive (down 2.09%) and entertainment (down 2.02%) rounded out the latest week's Bottom Five list. It was a striking comedown for diversified financials, which had been among the Top Five best-performing sectors the previous week with a 0.77% return.

Food, beverage and tobacco week's top sector

On the upside, the food, beverage and tobacco sector returned an index-best 2.01% in the latest week to grab the top spot away from the previous week's champion, diversified telecom, as already noted.

Real estate (up 1.79%), retail (up 1.60%), gaming, lodging and leisure (up 1.24%) and pipelines (up 1.03%) rounded out the latest week's Top Five list. It was the second consecutive week among that elite group for both real estate and gaming, lodging and leisure, which had also made it the previous week with returns of 1.46% and 0.65%, respectively.

Ad-dependent media year's worst

The ad-dependent media sector remained the worst sector on a year-to-date basis, as its 2008 loss increased to 53.38% from 52.58% the week before.

Real estate remained second-worst on the year, despite its repeat Top Five showing for the week, which caused its cumulative loss to narrow to 49.03% from 49.93% previously.

Autos repeated as the third-worst sector, although the group's 2008 loss eased to 48.80% from 49.09%.

Diversified financials, pulled down by their Bottom Five weekly performance, dropped one positions in the rankings to fourth-worst from just fifth-worst before, as the group's loss for the year expanded to 44.97% from 42.66% the week before.

Technology, not previously among the biggest losers, tumbled to fifth-worst as its cumulative loss widened to 43.66% from 42.61%. Gaming, lodging and leisure, whose cumulative performance was bad enough the previous week for fourth-worst in the index, with a 43.21% loss, managed to distance itself from the worst performers in the latest week, as its Top Five showing cut its loss for the year to 42.51% from 43.21%.

Aerospace tops for year

On the upside, with all sectors showing year-to-date losses for a 10th consecutive week and staying in the double-digits, deficit-wise, aerospace and defense retained the top spot, relatively speaking - i.e., it had the smallest cumulative loss - 10.49%, improved from 11.20% the week before.

Health care equipment and services remained second-best on the year, even though its 2008 loss widened to 14.75% from 14.44%.

Health care services continued at third-best on the year, as its loss narrowed slightly to 15.22% from 15.32%.

Food and drug retail moved up by one notch in the standings, to fourth-best from fifth previously, its 2008 loss narrowing to 17.20% from 17.35%.

Other telecom, not previously among the leaders, moved up to fifth-best in the index with a 17.89% loss, improved from 18.26%.

Credit insurance, which was fourth-best the week before with a 16.58% loss, fell out of leadership contention as its loss widened to 18.05%.

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