B of A High Yield Broad Market Index up 6.19% on week; 2009 opens with 1.07% gain

By Paul Deckelman

New York, Jan. 5 - The Banc of America Securities High Yield Broad Market Index shot up by 6.19% in the week ended Friday, its first advance of the new year and its third straight weekly gain, including the returns of 1.68% in the week ended Dec. 19 and 1.86% in the week ended Dec. 26.

Those gains - reflecting the considerably firmer tone seen in the financial markets recently - represent a sharp reversal of the previous pattern of five consecutive losses through the week ended Dec. 12, and 11 losses in the13 weeks ended Dec. 12, which also included a skid of six straight weekly retreats from mid-September to mid-October.

The weekly rise produced a 2009 year-to-date gain of 1.07%, although it should be noted that the cumulative gain differs from the weekly rise because it only includes trading on the very first session of the new year, on Jan. 2; the rest of the most recent week, and of its robust rise, counts against the index's woeful 2008 performance, which saw B of A's market measure end the year with a yawning 26.83% loss on Dec. 31.

The 2008 loss had reached its deepest point, 32.76%, in the Dec. 12 week, although it did lessen to 31.63% in the Dec. 19 week and 30.36% in the Dec. 26 week. In contrast, the 2008 peak level was a 1.86% cumulative gain seen in the week ended May 16, which continued unchanged the following week, ended May 23. In 2007, the index had risen 1.85% on the year. There were 22 weekly gains in 2008, 29 losses and the one unchanged week.

Spread tightens

B of A analysts said the index's average spread over Treasuries narrowed to 1,808 basis points in the week ended Friday, versus 1,845 bps as of Dec. 31 and 1,991 bps in the Dec. 26 week. The spread hit its widest 2008 level, 2,107 bps, in the Dec. 12 week. Its tightest level of the year was 651 bps for the week ended June 13, although even then, the year's spreads were notably wider than the 613 bps seen at the end of 2007.

The index's yield to worst fell to 19.81% in the most recent week, in from an even 20.00% on Dec. 31, from 21.46% in the Dec. 26 week, and from its high for the year, 22.74% in the Dec. 12 week. The 2008 low was 9.98% in the May 16 week, while the yield to worst had ended 2007 at 9.68%.

In the latest week, the index tracked 1,503 issues of $100 million or more, down from 1,509 issues on Dec. 31, though up from 1,499 issues in the Dec. 26 week. Its overall market value declined to $393 billion, versus $400.6 billion on Dec. 31, although it was up from $378.8 billion in the Dec. 26 week. Its low point for the year, reached in the Dec. 12 week, was $371.8 billion, while its 2008 high was $614.9 billion, seen in the May 23 week. Its 2007 year-end total was $595.3 billion.

CCCs conquer all

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), with all three finishing in the black for a third consecutive week, CCC rated credits did the best, by far, zooming 15.44% on the week, followed by single-B rated bonds, up 4.01%, and then BB rated paper, up 3.05%.

It was the second consecutive week in which the BBs lagged the other two groups - although this reversed a trend of seven straight weeks in November and December in which the BBs had been on top. It was also a sharp - if possibly temporary - repudiation of the pattern seen in 11 weeks of the previous 14 in which the CCCs had been at the bottom of the pile. The single-Bs, meantime, have now occupied the middle ground in seven weeks out of the last nine. In the week ended Dec. 26, the single-Bs rose 2.30%, the CCCs 1.95%, and the BBs 1.40%.

For all of 2008, the CCCs were the biggest losers, down 38.84% on the year, followed by the single-Bs, which fell 28.04%, and then the BBs, which were off 18.58%.

Positive sectors in control

In the latest week, 31 of the 38 active industry sectors into which B of A divides its high-yield universe finished in positive territory, with seven sectors in the negative.

It was the third straight week in which the positive sectors led, including the Dec. 26 week, when 34 sectors ended in the black versus just four in the red. Before that, however, there had been just two weeks in the prior 14 which the negative sectors did not dominate; for all of 2008, sectors showed more gains in 22 weeks, more losses in 29 and were evenly split one week.

Diversified financials week's best sector

Among specific sectors, diversified financials soared by 31.77% on the week, given a big boost by the explosive up-move in GMAC LLC, which was helped by the Detroit-based consumer finance company being recently granted bank-company status by the Fed, reducing its outstanding debt level via completion of an exchange offer and getting $5 billion of federal bailout assistance. Diversified financials took the top spot away from health care equipment and services, the previous week's champion, which had an index-best 5.54% return that week.

Automobiles (up 23.68% on the week, given a jump-start by the rise in General Motors Corp. upon GM's receipt of federal bailout money), diversified telecommunications (up 7.73%), wireline telecom (up 5.42%) and oil and gas (up 5.03%) rounded out the latest week's Top Five list of the best-performing sectors.

It was the third consecutive week in that elite group for diversified telecom, which had also made it the previous week with a 3.62% gain, and in the Dec. 19 week, when it showed an index-best 8.96% return. Diversified telecom has now been among the Top Five in five weeks out of the last six - although the volatile sector has been among the Bottom Five worst performing sectors in three weeks out of the last eight.

Autos and wireline telecom have each been in the Top Five in two weeks out of the last three, including the Dec. 19 week, when autos had a 5.5% return and wireline rose 5.10%.

Health care services week's worst sector

On the downside, health care services had the biggest loss on the week, 1.72%, displacing insurance brokerage, which had been the previous week's cellar-dweller with a 1.24% loss, its second straight week in that unenviable position (the insurance brokers had also suffered an index-worst loss of 6.32% in the Dec. 19 week and had been in the Bottom Five the week before as well with a 2.81% downturn). Health care services had also been among the Dec. 26 week's Bottom Five with a 0.42% loss.

Transportation (down 1.25%), property/casualty insurance (down 0.81%), real estate (down 0.51%) and credit insurance (down 0.43%) rounded out the latest week's Bottom Five list.

Credit insurance had also been there the two previous weeks, with a 0.25% loss in the Dec. 26 week, and, before that, a 3.88% fall, while real estate was among the big losers for the second time in three weeks, having also wound up there in the Dec. 19 week with a 1.05% loss. However, the volatile real estate group had actually been in the Top Five in each of the two weeks before that, with gains of 1.46% in the week ended Dec. 5 and 1.79% the following week.

Diversified financials year's best

In addition to leading all of the sectors for the week, diversified financials moved out to an early lead on a year-to-date basis - although that reflects only the dealings last Friday, the first session of the new year, when it was up 5.44%.

That was followed by fellow Top Five finisher autos (up 4.69%), other telecom (up 2.34%), Top Fiver diversified telecom (up 2.17%) and entertainment (up 1.70%).

Only the "other telecom" sector had been among the year-to-date leaders in 2008, when all sectors finished the year mostly deep in the red and the leaders were those with the smallest losses; as of the final week of the year, ended Dec. 26, other telecom had lost 10.29%, and on the last day of the year, still showed a loss of 8.35%, making it third-best on the year in relative terms behind aerospace and defense, which ended the year with a 6.20% loss and health care equipment and services, which lost 6.23%. Other sectors showing relatively small losses on the year in 2008 were health care facilities, down 11.13%, and wireless telecom, down 12.54%.

Credit insurance year's worst

On the downside, repeat Bottom Fiver credit insurance was showing the biggest loss for the year so far - again, counting only the first session - down 0.58%.

That was followed by banks (down 0.28%), chemicals (down 0.19%), and the pipelines and consumer non-cyclical/other sectors, each down 0.10%.

Banks had also been among the worst 2008 finishers, down 40.40% on the year. Other sectors ending last year with huge losses were advertising-dependent media, which nosedived an index-worst 52.18%; real estate, down 48.58%; technology, off 39.03%; and gaming, lodging and leisure, down 38.49%.

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