B of A High Yield Broad Market Index up 1.68% on week; 2008 loss narrows to 31.63%

By Paul Deckelman

New York, Dec. 22 - The Banc of America Securities High Yield Broad Market Index gained 1.68% in the week ended Friday, its first advance after five consecutive losses, including the 0.72% decline seen in the previous week, which ended Dec. 12. Even with that gain, though, there have still been 11 losses in the last 14 weeks, including a skid of six straight weekly losses from mid-September to mid-October.

The weekly rise did cause the index's year-to-date deficit to decline to 31.63% from the week-before level of 32.76% - its worst point of the year so far. 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 28 weeks, including the most recent five declines, the aforementioned six straight at the start of the fall and before that, another five straight downturns from mid-June to mid-July.

With 51 weeks now in the books, there have been 21 weekly gains, 29 losses and the one unchanged week.

Spread widens

B of A analysts said the index's average spread over Treasuries narrowed to 2,085 basis points, versus 2,107 bps, its widest point for the year, the week before.

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 fell to 22.29% from 22.74% the week before, its high point for the year. The 2008 low was 9.98% in the May 16 week.

In the latest week, the index tracked 1,506 issues of $100 million or more, down from 1,515 issues the week before, although its overall market value rose to $376.3 billion from the previous week's $371.8 billion, its low point for the year.

The index's total value still 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.

BBs outperform

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 actually finishing in the black for the first time since the week ended Aug. 15, BB rated credits did the best, up 2.82%, followed by single-B rated bonds, up 1.11%, and then CCC rated paper, up 1.02%

It was the seventh straight week in which the BBs outperformed the other two groups, as well as the sixth week in the past seven in which the three groups finished in that exact order. It was also the 11th week in the last 13 in which the CCC bonds lagged behind; in the week ended Dec. 12, the CCCs fell by 1.72%, while the single-Bs lost 0.73% and the BBs were down by just 0.11%.

Positive sectors back in control

In the latest week, 30 of the 38 active industry sectors into which B of A divides its high-yield universe finished in positive territory, with eight sectors in the negative. It was just the second week in the last 14 in which the negative sectors did not dominate the proceedings; more typical was the previous week, when 24 sectors finished in the red and 14 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 mostly dominated lately. To date, sectors have shown more gains in 21 weeks, more losses in 29 and were evenly split one week.

Diversified telecom week's best sector

Among specific sectors, diversified telecommunications - the previous week's poorest-performing sector, with a 4.34% loss - went from worst to first in the latest week, posting an index-best 8.96% gain to grab the top spot away from the prior week's champion, food, beverage and tobacco, which had led all sectors that week with a 2.01% return.

The volatile diversified telecoms have been swinging wildly in recent weeks, and have now been the best-performing sector in three weeks out of the last four, including index-best gains of 2.81% in the week ended Dec. 5 and 7.47% in the week ended Nov. 28, although they were also among the Bottom Five worst-performing sectors in the two weeks immediately before those index-leading gains, making three weeks out of the last six in which they have been among the big losers.

Besides diversified telecom, communications sectors dominated the latest week's Top Five list of best-performing sectors - other telecom (up 7.98%), wireless telecom (up 6.87%) and wireline telecom (up 5.10%). The sole non-telecom group among this week's Top Five was automobiles, up 5.55%.

Insurance brokers week's worst sector

On the downside, insurance brokers lost an index-worst 6.32% in the latest week to take over as the cellar-dweller from diversified telecom-as noted, the previous week's worst performer. It was the second straight week in the Bottom Five for the brokers, which also had that dubious honor the week before with a 2.81% loss.

Credit insurance (down 3.88%) and consumer products (down 1.49%) were also among the Bottom Five, with real estate and advertising-dependent media tied for the final spot on the list, each down 1.05%. Real estate had been among the Top Five sectors in each of the two previous weeks, with gains of 1.79% and, before that, 1.46%.

Ad-dependent media year's worst

Bottom Five finisher ad-dependent media remained the worst sector on a year-to-date basis, as its 2008 loss increased to 53.87% from 53.38% the week before.

Fellow Bottom Fiver real estate remained second-worst on the year, as its cumulative loss widened to 49.57% from 49.03% previously.

Autos, despite the sector's finish among the Top Five, repeated as the third-worst sector, although the group's 2008 loss eased to 45.96% from 48.80%.

The technology sector moved down one position in the standings, to fourth-worst from just fifth previously, as its loss for the year held steady at 43.65%. It traded places with the previous fourth-worst group, diversified financials, whose loss shrank to 43.22% from 44.97% before.

Aerospace tops for year

On the upside, with all sectors showing year-to-date losses for an 11th consecutive week, aerospace and defense retained the top spot, relatively speaking - i.e. it had the smallest cumulative loss - improving to 8.72% from 10.49% the week before.

Top Five finisher other telecom jumped three notches in the rankings to second-best from fifth previously, as its 2008 loss dwindled to 11.33% from 17.89% before.

That pushed health care equipment and services down one slot to third best from second, although its loss eased to 12.47% from 14.75%.

In turn, health care services dropped one place to fourth best on the year, as its loss narrowed slightly to 15.05% from 15.22%.

Top Fiver wireless telecom, not previously among the leaders, muscled its way into fifth place with a 15.20% cumulative loss, down from 20.65% the week before. That squeezed food and drug retail, formerly fourth-strongest on the year, out of leadership contention, as its 2008 loss narrowed only slightly to 17.14% from 17.20%.

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