B of A High Yield Broad Market index plunges 1.20% on week; 2008 loss deepens to 1.99%

By Paul Deckelman

New York, July 7 - The Banc of America Securities High Yield index plunged 1.20% in the week ended Thursday - its fourth consecutive loss, including the 1.56% swoon seen the previous week ended June 27.

That widened its year-to-date loss to 1.99% from 0.97% the week before - in between its peak level for the year, 1.86%, seen the two weeks ended May 16 and May 23, and its 2008 low point, a 4.15% loss the week ended March 14.

The index showed losses during the first three weeks of the year and continued that way most weeks through mid-March. The index then nosed upward with seven straight weeks of gains through early May. After that, it turned choppy and inconsistent, alternating gains, losses, and one week that saw neither a gain nor a loss, but a flat 0.00% reading. But the last four weeks have all been to the downside.

With just over half the year gone, weekly gains and losses stand at 12 gains, 14 losses and the one unchanged week.

Spread widens, total value falls

B of A analysts said that the index's average spread over Treasuries widened to 789 basis points from 749 bps the week before, between its tight point of the year, 651 bps in the week ended June 13, and the wide point for the year of 862 bps in the March 14 week. This year's spreads have been notably wider than the 613 bps at the end of 2007.

The index's yield to worst widened from 10.90% the week before to 11.25% - a new 2008 high, eclipsing the former peak, 11.16%, in the March 14 week. Its 2008 low was 9.98% in the May 16 week.

The index tracked 1,566 issues of $100 million or more, down from 1,574 issues the week before, and its overall market value fell from $596.5 billion the prior week to $586.3 billion, moving back below the 2007 year-end total of $595.3 billion - a mark it had only matched and surpassed in early May. 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), all three remained in negative territory and finished in the same order for a third consecutive week. BB rated bonds again had the smallest loss, 0.49%, while B rated credits lost 1.34% and CCC rated paper fell 2.16%. The week before, the BBs lost 0.51%, the single-Bs 2.12% and the CCCs 2.17%.

The B of A analysts noted that three new deals totaling $2 billion priced last week, versus nine new issues collectively worth $11 billion the week before. The latest deals pushed the year-to-date total up to $46 billion in 81 deals.

The analysts noted that weekly reporting high-yield mutual funds saw an inflow of $87.1 million in the week ended Wednesday, according to statistics from AMG Data Services. That broke a skid of two straight outflows, including the previous week's $651.2 million cash exodus, which had followed 11 straight weekly inflows, and it brought the year-to-date cumulative inflows figure for the weekly reporters to $1.2 billion.

Negative sectors retain control

In the latest week, 35 of the 40 industry sectors into which B of A divides its high-yield universe were in negative territory, just three sectors had positive returns and two sectors had flat 0.00% readings, with neither a loss nor a gain. However, it should be noted that these latter two - credit insurance and leisure equipment and products - are relatively new sectors created in the 2006 index restructuring, but even at this late date still do not have any issues represented in them. In the previous week, 34 sectors finished in the red, four were in the black and the two newer sectors had flat readings.

The latest week's results continued a now four-week trend which seems a throwback to the early part of the year when most weeks saw negative sectors dominating. To date, sectors have shown more gains in 13 weeks and more losses in 14.

Diversified financials worst performer

Among specific sectors, diversified financials repeated as the cellar-dweller, losing 4.04% on top of the prior week's 4.71% loss, the sector's third straight week among the Bottom Five worst finishers.

Automobiles (down 4.02%), insurance brokers (down 2.06%), chemicals (down 1.60%) and technology (down 1.34%) rounded out the latest week's Bottom Five. Autos have now been there seven straight weeks, including the June 27 week, when they plunged 4.04%, and three other weeks when they showed the index's worst losses. Chemicals have been among the big losers in three straight weeks, including the previous week's 1.17% loss.

Life/health insurance best sector

On the upside, life/health insurance repeated in the top spot with a 0.42% gain, on top of its index-best 1.18% the previous week. It was the group's third straight time among the Top Five best-performing sectors, and it has now also been there in four weeks out of the last five and six out of the past nine. However, swinging wildly between large gains and losses, the volatile sector has also been a Bottom Fiver those weeks when it has not shown large gains - now six weeks out of the last 12.

Banks (up 0.31%) and health care facilities (up 0.07%) were the only other sectors finishing in the black. Wireless telecommunications (down 0.10%) and health care equipment and services (down 0.13%), with the smallest losses of any sectors in the red, filled out the latest Top Five. It was the second straight finish there for banking, which also made it with a 1.05% gain the week before.

Wireless telecom top 2008 sector

Wireless telecom, a Top Five finisher, as noted, remained the best-performing sector on a year-to-date basis, although its cumulative return fell to 7.59% from 7.85%. Fellow Top Fiver banking moved up two positions to second-best, as its return grew to 5.58% from 5.36%. Bottom Five finisher insurance brokerage fell one notch, to third place, as its 2008 return shrank to 5.13% from 7.37%. That in turn pushed pharmaceuticals down one peg to fourth-best, the sector's return retreating to 4.81% from 5.64%. Metals and mining stayed at number five, as its return fell to 4.76% from 4.96%.

Autos now year's worst sector

On the downside, Bottom Fiver automobiles fell one position to take over as the index's biggest year-to-date loser, its loss ballooning to 11.24% from 7.61%. The week's worst finisher, diversified financials, fell two notches year to date, to second-worst, with a 10.21% loss versus a 6.52% loss before. Advertising-dependent media, previously the year's worst, improved, relatively speaking, to just third-worst, even as its loss grew to 8.59% from 7.80%. Gaming, lodging and leisure also thus gained one notch, to only fourth-worst, although its loss widened to 7.80% from 7.01%. Repeat Bottom Fiver chemicals, not previously among the worst losers, tumbled to fifth-worst with a 4.63% loss for 2008 versus 3.21% before.

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