Banc of America High Yield Broad Market Index off 0.87%, breaks 23-week winning streak

By Paul Deckelman

New York, Feb. 2 - The Banc of America High Yield Broad Market Index posted its first weekly loss of the year and its first downturn since last August as an amazing 23-week stretch of positive returns finally came to an abrupt end. The index lost 0.87% in the week ended Thursday (Jan. 29) following the 0.56% gain in the previous week ended Jan. 22.

The index's year-to-date return narrowed to 1.61% from 2.50% the previous week, its high for 2004 so far. The index had gained a stunning 28.88% in 2003.

In the latest week, the High Yield Broad Market Index's spread over Treasuries widened slightly to 470 basis points from 466 basis points the previous week, while its yield to worst also increased to 7.58% from the previous week's 7.28%, the low for the year so far.

Banc of America's High Yield Large Cap Index showed a similar, though more pronounced, pattern. In the week ended Thursday, it lost 1.34%, its first weekly decline in 2004, ending a 13-week winning streak. The Large Cap index had returned 0.58% in the previous week. The cumulative return for 2004, oddly enough, meanwhile also fell to 1.34% from 2.71% the previous week, its high for the year. The index had posted a stellar 32.62% cumulative return in 2003.

Large Cap's spread over Treasuries - like that of the High Yield Broad Market Index - widened to 446 basis points from 434 basis points, while its yield to worst increased to 7.48% from the previous week's 7.08%, the 2004 low.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,639 issues of $100 million or more, having a total market value of almost $510 billion, down from $512 billion the week before. Meanwhile, the High Yield Large Cap Index, representing the most liquid portion of the high-yield world, tracked 574 issues of $300 million or more having a total market value of about $307 billion, off from $310 billion previously. Banc of America sees both as reliable proxies for the $750 billion high-yield universe.

Funds still see inflows

Banc of America Securities analysts noted that despite the softer secondary market, high-yield mutual funds reported an inflow of $252 million in the week ended last Wednesday, as measured by AMG Data Services.

AMG's weekly fund-flow statistics are seen by market participants as a key barometer of overall junk market liquidity trends. It was the 13th consecutive week in which more money came into the junk funds than left them.

On a credit basis, the lowest of the three credit tiers into which Banc of America divides its index - issues rated B- and below, accounting for 37.62% of the index - posted the largest loss, 1.12%. This was followed by the middle credit tier, consisting of those issues rated BB-, B+ and B and making up 46.95% of the index, which lost 0.86%. The upper credit tier, consisting of those credits rated BB and BB+ and comprising 15.44% of the index, had the smallest loss of the three, 0.30%. In the previous week, the lowest tier had the best return, at 0.81%, followed by the middle tier, at 0.42%, and the upper tier, at 0.39%.

Along with the 23-week winning streak, the recent trend of broad-based advances encompassing most, or in some cases, even all of the sectors, came to an end. Of the 23 industry groups into which Banc of America divides its high-yield universe, fully 18 were in the red and just five were in positive territory, a shocking turnaround from the previous week, when all 23 subsectors had registered positive results.

Wireline telecoms worst for week

In the week ended Thursday, the wireline telecommunications subsector turned in by far the worst performance, losing 2.30%. It was a sharp reversal for the group, which had been among the Top Five best performers in the week ended Jan. 22, when it gained 0.78%. Paper and packaging had been the worst finisher that week, with a paltry 0.12% gain, the smallest of any subsector.

Utilities (down 2.17%) were the second-worst grouping in the latest week. Healthcare (down 1.82%), PCS/cellular (off 1.74%) and cable/DBS (off 1.70%) filled out the Bottom Five list of the week's weakest performers. In the previous week, cable/DBS had actually led all subsectors with a 1.04% return, followed by the utilities, which had been up an even 1%. The PCS/cellular names had been among the weakest groups, with a meager 0.26% gain.

There wasn't much of an upside in the latest week, but non-ferrous metals and mining - on the Top Five list for a third consecutive week - led it, with a 0.67% return, displacing the previous week's leader, cable/DBS, which as noted tumbled into the Bottom Five this past week. The non-ferrous metals and mining grouping had also been on the Top Five list in the previous week, with a 0.88% return, and had again led all subsectors the previous week ended Jan. 15.

Finance (up 0.55%) was the second-best finisher in the most recent week. Industrials (up 0.30%), gaming (up 0.26%) and energy (up 0.08%) - the only other subsectors finishing in the black - rounded out the latest week's Top Five list.

Change in year-to-date leader

On a year-to-date basis, the non-ferrous metals and mining group - on the strength of this past week's index-leading performance and third straight finish in the Top Five - has taken over the top spot, with a 3.92% cumulative return, up from 3.23% the week before. The previous week's year-to-date leader, cable/DBS, sank to a 1.77% return from 3.54% previously, dragged down by its Bottom Five showing in the most recent week.

Following the non-ferrous metals grouping year-to-date was finance, with a 3.38% total return, powered by its second-place finish in the most recent week, and transportation, a distant third at 2.72%.

The unenviable distinction of having the year's worst cumulative return so far now falls to healthcare - one of this week's worst finishers - which has gained just 0.32% since the start of the year, edging out the previous week's worst cumulative performer so far, publishing, whose return fell to 0.46% from 1.54% the prior week.

Other particularly weak subsectors year to date include paper and packaging (0.87%) and, due to this past week's index-worst result, wireline telecom (0.97%).

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.