B of A High Yield Broad Market index down 0.79% on week; 2008 loss grows to 3.35%

By Paul Deckelman

New York, Aug. 4 - The Banc of America Securities High Yield index fell 0.79% in the week ended Friday, its second straight loss, on top of the 0.11% setback the previous week ended July 25.

The latest retreat widened its year-to-date loss to 3.35% from 2.57% the week before, keeping it 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 in that negative trend 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 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 now shown seven losses in the past eight weeks, including five straight at one point, starting in mid-June.

With 31 weeks now in the books, there have been 13 weekly gains, 17 losses and the one unchanged week.

Spread widens, total value lower

B of A analysts said the index's average spread over Treasuries widened to 842 basis points from 801 bps the week before; for now, that measure remains 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 rose to 11.72%, a new high for 2008, from 11.51% the week before, the previous high for the year. Its 2008 low was 9.98% in the May 16 week.

The index tracked 1,554 issues of $100 million or more, up from 1,549 issues the week before, while its overall market value declined to $572.1 billion from $576.8 billion the week before, moving further back below the 2007 year-end total of $595.3 billion.

The latest week's total is well below its 2008 peak of $614.9 in the May 23 week, though still above its year's-low of $569.1 billion seen in the March 14 week. 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 BB rated credits made the best showing, relatively speaking with all three categories in the red, losing just 0.07%, while the single-B rated issues lost fell 1.07% and the CCC rated credits plunged 1.40%.

It was the second consecutive week in which the three categories finished in that particular order. In the prior week, the BBs led the way, unchanged on the week, followed by the single-B, down 0.14%, while the CCCs brought up the rear with a 0.20% loss.

Negative sectors narrowly lead

In the latest week, 19 of the 37 active industry sectors into which B of A divides its high-yield universe were in negative territory, 17 sectors had positive returns and one sector - health care facilities - was unchanged with a flat 0.00% reading, neither a loss nor a gain.

In the previous week, 18 sectors finished in the red, 18 were in the black, and the insurance brokerage sector had a flat 0.00% reading. Three other sectors - life/health insurance, credit insurance and leisure equipment and products - exist on paper and technically remain part of the index but do not currently have any high-yield issues trading in them.

At the beginning of the year, most weeks saw negative sectors dominate, but the breakdown essentially evened out after that. To date, sectors have shown more gains in 14 weeks, more losses in 16, and the even split seen in the July 25 week.

Banking week's worst performer

Among specific sectors, banks were by far the week's worst performer, nosediving an astonishing 10.16% to take over as the cellar-dweller from pipelines, which had racked up an index-worst 4.78% loss the week before.

It was the fourth straight week in which the banking sector has been among the Bottom Five worst-performing sectors. In July 25 week, the banking sector had a 4.02% loss - the second week in the last three in which the banks were at the bottom of the pile. The sector was also the biggest loser in the week ended July 18, when it slid 6.16%.

Automobiles (down 4.81%), diversified financial (down 3.66%), pharmaceuticals (down 3.56%) and advertising-dependent media (down 2.57%) rounded out the latest week's Bottom Five list. It was the second straight week in the Bottom Five for the autos, which had skidded 1.19% the previous week.

Insurance brokers week's best sector

On the upside, the insurance brokers had the week's best return, up 0.80%, grabbing the top spot away from chemicals, which had won that honor the week before with a 1.22% return.

Cable/DBS operators (up 0.72%), health care equipment and services (up 0.62%), other health care (up 0.61%) and real estate (up 0.56%) rounded out the latest week's Top Five list of the best-performing sectors. It was a comeback for other health care, among the Bottom Five the week before with a 0.77% loss.

Banks now year's worst sector

On a year-to-date basis, banking - already the week's worst-performing sector, as noted - also had the unwanted distinction of taking over as the worst loser for the year, falling four notches from just fifth-worst all the way to the bottom as its cumulative loss more than doubled to 18.04% from 8.76% previously. Bottom Five finisher autos, previously just fourth-worst, dropped two positions to second-worst, its total loss ballooning to 14.39% from 10.06%.

Bottom Fiver ad-dependent media, previously the biggest loser to date, improved two slots, relatively speaking, to just third-worst, while its loss widened to 13.70% from 11.43%. Diversified financials, also among the Bottom Five, improved one rank from third-worst to just fourth, although its deficit deepened to 13.59% from 10.31%. Gaming, lodging and leisure also moved up a little to just fifth-worst from second-worst before, its total loss expanding only modestly to 11.41% from 10.90%.

Wireless telecom top 2008 sector

Wireless telecommunications remained the best-performing sector year to date, as its cumulative return rose to 6.90% from 6.45% previously. Top Fiver health care equipment and services moved up two notches in the standings to second-best from fourth, its return widening to 5.45% from 4.80%. That pushed the previous Number-Two, metals and mining, down one place to third, its return increasing only modestly to 5.33% from 5.20%.

Health care facilities moved up one position to fourth-best, even as its return for the year, 4.59%, was essentially unchanged, like its weekly total.

Electric utilities, not previously among the leaders, grabbed fifth place as its 2008 return rose to 3.65% from 3.22%.

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