B of A High Yield Broad Market index up 0.25% on week; 2008 loss narrows to 2.47%

By Paul Deckelman

New York, July 14 - The Banc of America Securities High Yield index rose by 0.25% in the week ended Friday - its first advance after five consecutive losses, including the 0.74% fall seen the previous week ended July 11.

That narrowed its year-to-date loss to 2.47% from 2.71% 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 the first three weeks of the year and continued that way most weeks through mid-March, but 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 subsequent five weeks, before the week ended Friday, were all to the downside.

With 29 weeks in the books, weekly gains and losses stand at 13 gains, 15 losses and the one unchanged week.

Spread tightens, total value edges lower

B of A analysts said that the index's average spread over Treasuries tightened to 796 basis points from 812 bps the week before, in 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 seen at the end of 2007.

The index's yield to worst narrowed slightly to 11.45% from the previous week's 11.47% - the high for 2008. Its 2008 low was 9.98% in the May 16 week.

The index tracked 1,549 issues of $100 million or more, down from 1,557 issues the week before, while its overall market declined slightly to $577 billion from $577.1 billion the week before, moving further back below the 2007 year-end total of $595.3 billion. B of A sees the index as a reliable proxy for the high-yield universe, which by some estimates is valued 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), the single-B rated credits had the best performance, up 0.59%, followed by CCC rated issues, which rose 0.13%. BB rated bonds lagged with a 0.09% loss. The week before, when all three categories were in the red, the BBs had the smallest loss, 0.49%, followed by the single-Bs, down 0.56%, and the CCCs, down 1.62% - the fourth consecutive week in which the three groups finished in that exact order.

Positive sectors regain control

In the latest week, 21 of the 40 industry sectors into which B of A divides its high-yield universe were in positive territory, 16 sectors had negative returns and three sectors had flat 0.00% readings, neither a loss nor a gain. However, it should be noted that two of these - credit insurance and leisure equipment and products - are relatively new sectors created in the 2006 index restructuring, but even at this somewhat late date still do not have any issues represented in them. The third, life/health insurers moved to empty status this past week as the one company, Unum Group, whose issues had been represented in the sector was upgraded to investment-grade status by Standard & Poor's and thus passed out of the HY universe.

In the previous week, 29 sectors finished in the red, nine were in the black and the two newer sectors had flat readings.

The latest week's results interrupted a five-week trend which seemed to be a throwback to the earlier part of the year, when most weeks saw negative sectors dominating. To date, sectors have shown more gains in 14 weeks and more losses in 15.

Autos week's best performer

Among specific sectors, automobiles had the best return for the week, 2.70%, taking over the top spot from the previous week's champion, food, beverage and tobacco, which had an index-best 0.40% gain in the week ended July 11.

Diversified financials (up 1.57%), other telecommunications (up 1.48%), commercial services (up 0.75%) and chemicals (up 0.52%) rounded out the latest week's Top Five list of the best-performing sectors. It was a strong comeback for diversified financials, which had been among the Bottom Five worst-performing sectors for four consecutive weeks, including the July 11 week, when it lost 1.51%. In two of those weeks, the sector had the worst performance of any in the index.

Banking again week's worst

On the downside, banks plunged by 6.16%, repeating as the cellar-dweller following the previous week's 4.05% nosedive.

Insurance brokers (down 2.72%), pipelines (down 1.38%), consumer non-cyclical/other (down 1.28%) and consumer durables/non-auto (down 1.12%) rounded out the latest week's Bottom Five.

Wireless telecom top 2008 sector

Wireless telecommunications remained the best-performing sector on a year-to-date basis, although its cumulative return fell to 6.86% from 7.15% previously.

Pharmaceuticals moved up one position in the rankings to second place and metals and mining two notches for a tie there, as each sector's 2008 return grew to 4.91%, from 4.83% and 4.69%, respectively. Next came healthcare, up two notches to third-best, as its return improved to 4.77% from 4.32%. That vaulted it past the previous Number-Two, insurance brokers, whose Bottom Five weekly loss dragged its overall return down to 2.50% from 5.36%.

Ad-dependent media becomes year's worst sector

On the downside, advertising-dependent media dropped three positions, all the way to the bottom, as it took over as the index's biggest year-to-date loser with an overall loss of 11.12% versus 10.13% previously.

Gaming, lodging and leisure dropped one notch to second-worst, although its deficit was little changed, at 11.09%.

Bottom Five finisher diversified financials - previously the index's biggest loser - improved by two notches, relatively speaking, to just third-worst, as its weekly gain cut its 2008 loss to 10.19% from 11.57%. Fellow Bottom Fiver autos, helped by its index-best weekly showing, improved two positions to just fourth-worst, its red ink declining to 8.98% from 11.38% before. Banks, the worst weekly finisher as noted, tumbled to fifth-worst on the year, swinging from a 1.30% cumulative profit to a 4.94% cumulative loss.

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