B of A High Yield Broad Market index up 0.24% on week; 2008 loss narrows to 2.76%

By Paul Deckelman

New York, Sept. 2 - The Banc of America Securities High Yield index rose 0.24% in the week ended Friday, regaining some ground lost in the 0.40% fall seen in the previous week, ended Aug. 22.

The latest advance narrowed its year-to-date loss to 2.76% from 2.99% the week before. The year-to-date deficit remains in between the index's peak level for the year, 1.86%, seen over 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 - even including its latest gain - has still shown eight losses in the past 12 weeks, including five straight at one point, starting in mid-June.

With 35 weeks now in the books, there have been 16 weekly gains, 18 losses and the one unchanged week.

Spread wider, total value rises

B of A analysts said the index's average spread over Treasuries rose to 860 basis points, up from 857 bps the week before; for now, that measure remains just shy of its wide point for the year of 862 bps in the March 14 week.

The spread's tightest level of the year was 651 bps in the week ended June 13, although even then, 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 to 11.76% from 11.77% the week before, the high for the year so far. The 2008 low was 9.98% in the May 16 week.

The index tracked 1,546 issues of $100 million or more, unchanged from the week before, while its overall market value rose to $572.2 billion from $571.9 billion the week before, remaining substantially below the 2007 year-end total of $595.3 billion. The latest week's total is even further below its 2008 peak of $614.9 billion in the May 23 week, but only a little 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 turned in the best showing for a second straight week and for the fifth week in the last six, gaining 0.34%, while the single-B rated bonds rose 0.31% and the CCC rated issues were unchanged at 0.00% - the second straight week in which the latter group underperformed the other two groups.

In the prior week, when all three categories finished in the red, the CCCs were again at the bottom of the pile with a 0.94% loss, while the single-Bs were down 0.31% and the BBs had the smallest loss, 0.21%.

Positive sectors regain lead

In the latest week, the number of active industry sectors into which B of A divides its high-yield universe rose by one to 38, with the addition of credit insurance, a sector that previously had no junk-rated issues trading in it. Thirty sectors were in positive territory and eight sectors had negative returns. In the previous week, with 37 active sectors, 23 finished in the red and 14 were in the black. Two other sectors - life/health 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 17 weeks, more losses in 17, and were evenly split one week.

Diversified telecom week's best sector

Among specific sectors, diversified telecommunications rose an index-best 1.74%, taking over the top spot from the previous week's champion, consumer products, which had led all sectors with a 0.41% gain that week. However, it was the second week in the past three in which diversified telecom had led all sectors; it had also done so in the week ended Aug. 15 with a 2.34% gain.

Commercial services (up 0.93%), advertising-dependent media (up 0.58%), pharmaceuticals (up 0.55%) and technology (up 0.53%) rounded out the latest week's list of the Top Five best-performing sectors. It was the second straight week among that elite grouping for ad-dependent media, which had also been there the week before with a 0.40% rise.

Banking week's worst sector

On the downside, banks were again the single worst-performing group, losing an index-worst 1.75% to retain that dubious distinction; the banks had taken over as the cellar-dweller in the Aug. 22 week with a 4.69% plunge.

Retail (down 0.66%), consumer products (down 0.47%), consumer durables/non-automotive (down 0.37%) and food and drug retailers (down 0.30%) rounded out the Bottom Five list of the worst-performing sectors in the latest week. It was a definite reversal for consumer products, which, as noted, had been the top-performing sector in the Aug. 22 week.

Banks year's worst sector

On a year-to-date basis, there was no change in the relative rankings of the worst-performing sectors, which have now been in the same order for four consecutive weeks. Banking was not only the week's worst performer again, but also remained the biggest loser for the year so far, as its 2008 loss ballooned out to 21.46% from 20.07% the week before.

Ad-dependent media, despite its repeat Top Five weekly showing, was again second-worst on the year, although its cumulative loss of 13.97% tightened from the previous week's 14.47%.

Diversified financials remained third-worst, although its loss for the year declined to 13.77% from 13.95%.

Gaming, lodging and leisure stayed at fourth-worst, even as its loss for the year moderated to 12.67% from 12.82%.

Automobiles again languished as the fifth-worst sector, although the grouping's year-to-date loss decreased to 11.66% from 11.89% previously.

Wireless telecom tops for year

On the upside, wireless telecom remained the best-performer year to date, as its cumulative return grew to 9.55% from 9.09% previously.

Health care equipment and services was again second-best, its return widening to 6.45% from 6.21%.

Metals and mining held onto third-place, as its return improved to 5.46% from 5.27%.

Health care facilities stayed fourth-best, its return for the year at 5.21%, up from 5.09%.

Diversified telecom, not previously among the leaders, jumped to fifth-best on the strength of its index-best weekly performance, its year-to-date return swelling to 4.64% from 2.85% previously.

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