B of A High Yield Broad Market Index loses 26.83% for 2008

By Paul Deckelman

New York, Jan 2 - The Banc of America Securities High Yield Broad Market Index lost 26.83% in 2008. That disastrous showing stands in stark contrast to previous years; after having posted losses of 2.80% in 2001 and 2.89% in 2002, the index turned in a stellar performance in 2003, when it jumped 28.88%. It rose 11.01% in 2004, eked out a 2.10% gain in 2005, bounced back to advance 11.89% in 2006, and managed to hang on amid the burgeoning subprime mortgage crisis to end 2007 still on a positive note, though just barely, at 1.85%.

Two-thousand eight - when 2007's subprime crisis widened to envelop many other parts of the credit markets - began on a sour note, with the index showing losses over the first three weeks of the year and continuing in that negative trend most weeks through mid-March. It then nosed upward with seven straight weeks of gains through early May, and finally reached positive territory on a cumulative basis in the week ended April 25. After reaching its peak cumulative gain for the year of 1.86% in the week ended May 16 and staying there the following week, ended May 23, things were all downhill from there.

The index 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 losses once again began dominating by late June. It returned to negative territory on a cumulative basis in the week ended June 27, and never recovered. While the year-to-date losses remained modest through the summer, the negative snowball rolling downhill began to gather momentum following the stunning mid-September news of Lehman Brothers' slide into bankruptcy. The 2.56% year-to-date loss posted in the week ended Sept.12 - the last week before the Lehman news hit the market like a sledgehammer - literally doubled the following week to 5.11%, and kept right on growing, the loss finally ballooning to 32.76%, its widest point of the year, in the week ended Dec. 12.

The last two full weeks of 2008, which followed the Federal Reserve's electrifying Dec. 16 news of a larger than expected 75 basis point cut in the federal funds rate target and a Fed pledge to do everything necessary to stabilize the credit markets and the economy, actually showed sizable gains - 1.68% in the week ended Dec. 19 and 1.86% in the holiday-shortened week ended Dec. 26. Continued daily gains over the last several sessions of 2008 finally brought the loss down to 26.83% at the close on Dec. 31.

Through the week ended Dec. 26, the last official week of 2008, the index showed 22 weekly gains, 29 losses and the one unchanged week.

Spread widens, badly

Other index measures also showed the sharp deterioration which the junk bond market underwent in 2008.

B of A analysts said the index's average spread over Treasuries gapped out to 1,845 basis points at year-end, although that had tightened over the last two weeks and several leftover sessions of the year from its widest point of the year, a yawning 2,107 bps in the week ended Dec. 12. The spread's tightest level of the year was 651 bps in the week ended June 13, although even then, the year's spreads were notably wider than the 613 bps seen on the last day of 2007.

The index's yield to worst meantime zoomed to a high of 22.74% in the Dec. 12 week, before coming in to a year-end level of exactly 20.00%. The 2008 low was 9.98% in the May 16 week; 2007 had ended with a yield to worst of 9.68%.

As of Dec. 31, the index tracked 1,509 issues of $100 million or more, down from 1,568 exactly one year earlier, and its overall market value had plunged to $400.6 billion from $595.3 billion a year earlier; that market value was up from a low for the year of $371.8 billion in the Dec. 12 week, but was well below its high for 2008 at $614.9 billion, seen in the May 23 week.

Negative sectors dominate year

On the last day of the year, 36 of the 38 active industry sectors into which B of A divides its high-yield universe finished in positive territory on the day, with just two - entertainment and transportation - on negative ground. However, it was quite a different story for the full year. On a weekly basis, there were more sectors showing gains in 22 weeks, more showing losses in 29 weeks and one week in which the sectors split evenly between those in the black and those in the red. But on a year-to-date basis, all 38 sectors finished in the red, most of them by double-digit percentage measures.

Ad-dependent media year's worst sector

Among the individual sectors, advertising-dependent media was the year's single-worst performer, plummeting 52.18% from a year ago, when the sector had gained 0.20%. Real estate was only slightly better, with a 48.58% loss for the year, versus a 3.09% gain in 2007. Banks nosedived 40.40% on the year; the sector had also been among the biggest losers in 2007, when it eased by 3.33%. Technology issues lost 39.03% in 2008, versus a 2.89% gain the year before. Gaming, lodging and leisure proved to be a bad bet for investors, with a 38.49% loss, versus its 1.52% year-earlier gain.

Other big losers in 2007 had been consumer durables/non-auto, which suffered an index-worst 13.28% loss that year; diversified financials, down 8.82%, insurance brokers, off 7.78%, and retail, down 2.52%.

Aerospace & defense year's smallest loss

On the upside, with all of the sectors finishing in the red on the year, aerospace and defense was the best-performing sector, relatively speaking, posting the smallest 2008 loss, 6.20%; it had also been among the best performers in 2007, with a 6.91% gain that year.

Healthcare equipment and services was next with just a 6.23% loss for the year; the sector had been the absolute best performer in 2007, posting an index-best 11.36% gain. Other telecommunications lost 8.35% in 2008; in 2007, it had gained 3.33%.

Those were the only three sectors able to keep their losses for the year in the single-digits, percentagewise. Healthcare facilities managed a relatively modest 11.13% loss, versus a 6.67% gain a year earlier, while wireless telecom finished down 12.54% on the year, versus a 5.83% gain for 2007.

Other index leaders in 2007 had been metals and mining, up 7.60%, and the transportation and diversified telecom sectors, each up 7.24%.

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