B of A High Yield Broad Market Index tumbles 2.10%, swings to 1.53% loss for year so far

By Paul Deckelman

New York, May 17- The Banc of America Securities High Yield Broad Market Index posted its third consecutive weekly loss and by far its largest loss so far this year in the week ended Thursday May 13 - and fell into negative territory on a year-to-date basis for the first time this year.

In the latest week, the index lost 2.10%, on top of the 1.08% loss the previous week, which had been the largest weekly loss up to that point. The latest week's big loss was enough to drag the index's year-to-date performance into the red, with a cumulative loss of 1.53%, versus the 0.58% year-to-date gain it had shown the week before.

The index's spread over Treasuries widened 20 basis points in the latest week to 493 basis points from 473 basis points in the May 6 week; as had been the case the week before, only the accompanying deterioration in Treasuries, fueled by interest-rate hike fears, kept the spread from being far larger. However, it remains well under its high for the year of 527 basis points set in the week ended March 25. Meanwhile, the latest week's yield-to-worst grew to 8.78% - a new high for the year - from 8.19% the week before, the previous 2004 high.

The latest week's big loss - the second sizable large loss in a row - continues the departure from the pattern seen in effect since early February; after having posted strong gains in the first weeks of the year, continuing a fabulous winning streak that went all the way back to mid-August of 2003, the index recorded its first downturn in many months in the week ended Jan. 29 and then showed its first big loss this year, 1.06%, the following week. Since then and before these past two weeks, the index had pretty much zig-zagged inconclusively up and down - up modestly a week or so here, down moderately a week or so there.

B of A's more narrowly focused High Yield Large Cap Index had, until the past two weeks, followed the same recently choppy, inconclusive pattern as the HY Broad Market index, but Large Cap imploded in the week ended Thursday with a year's-worst 2.35% loss, on top of the 1.36% fall in the week ended May 6, the previous worst loss of the year. The cumulative loss for 2004 deepened to 2.76% from the 0.42% year-to-date loss the week before.

Large Cap's spread over Treasuries - like that of the HY Broad Market Index - was noticeably wider in the most recent week, in line with the index's weakness, moving out to 484 basis points over from 461 basis points in the week ended May 6, though it is still inside the year's high of 512 basis points in the week ended March 25. The yield-to-worst meantime widened to 8.80%, its high for the year, from the previous 2004 high of 8.19% the week before.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,663 issues of $100 million or more, but total market value of the issues tumbled to about $495.5 billion from the not quite $506 billion the week before, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 592 issues of $300 million or more, but total market value declined to $297.7 billion from about $304.8 billion the week before. B of A sees both as reliable proxies for the $750 billion high yield universe.

On a credit basis, all three of the credit tiers into which B of A divides its index posted large declines ; the middle credit tier (consisting of those issues rated BB-, B+ and B and making up 44.80% of the index) had the smallest loss, at 1.99%, followed by the lowest grouping ( issues rated B- and below, accounting for 41.09% of the index), with a 2.17% loss. The highest credit tier - those credits rated BB+ and BB, comprising 14.11% of the index - had the largest loss, 2.24%.

The week before, the order of finish had been reversed, with the middle credit tier having the largest loss, 1.12%, the lower tier next, off 1.09%, and the upper tier having the smallest loss, at 0.90%.

All industry sectors lose ground

The magnitude of the latest week's rout is shown by the fact that all 23 of the industry groupings into which B of A divides its high yield universe were in the red this week, and every single one of them had a loss of at least a full percentage point - and many of the sub-sectors had losses well beyond that. The previous week, 22 sub-sectors had negative returns, although some of those were on the small side, and one grouping, finance, broke even at 0.00%.

B of A analysts noted that the HY Broad Market Index suffered its worst weekly loss since last July. They said "a negative tone in the secondary was accompanied by a continued decline in demand, as reflected in High Yield mutual fund flows," with AMG Data Services reporting that $2.145 billion more left the junk funds - a key barometer of overall market liquidity trends - than came into them in the week ended last Wednesday - the biggest outflow seen since early last August.

The analysts also noted the "weaker tone" in the high yield primary market, "with some issuers choosing to postpone deals due to current market conditions."

Transportation worst

In the latest week, the airline-heavy transportation sector continued to be roiled by sharply rising oil prices on top of the usual terrorism-linked concerns, and was the worst-performing sub-sector for a second straight week, its 4.49% swoon coming on top of the group's index-worst 2.37% plunge in the week ended May 6.

The steelmakers were the second-worst performers in the most recent week, tumbling 3.82%; the steelers had also been on the Bottom Five list of the worst-performing sub-sectors the previous week, when they were down 1.72%.

PCS/cellular (down 2.90%), utilities (off 2.63%) and paper and packaging (a 2.60% decline) rounded out the latest week's Bottom Five; it was the second straight week on the list for the utilities, which were down 2.10% the week before.

Publishing has smallest loss

There was no upside as such in the most recent week, with all of the sector groupings solidly in the red. On a relative basis, the smallest loss, 1.02%, belonged to publishing. The week before, finance had been the best of a bad lot, with a breakeven 0.00% return.

Advertising-dependent media (down 1.25%), consumer non-durables (off 1.31%), gaming (off 1.52%) and wireline telecommunications (a 1.59% loss) rounded out the Top Five, such as its was, in the most recent week; the consumer non-durables were among the least-weak finishers for a third consecutive time, including the previous week's 0.56% loss and a 0.12% gain the week before that.

On a year-to-date basis, transportation, hurt by two straight weeks of index-worst showings, has moved past wireline for the dubious distinction of single worst industry grouping year-to-date, its loss widening to 11.65% from 7.50% the previous week. Meantime, wireline, whose losses the past two weeks have been moderate compared to those of the transportation sector, has a cumulative loss of 9.79%, having widened from 8.34% previously

Utilities, on the basis a second-straight Bottom Five showing this week, are now down 4.87% on the year, having widened their loss sharply from 2.31%. Other subsectors solidly in negative territory year-to-date include cable /DBS (down 3.29%) and PCS/cellular, whose loss widened sharply to 3.08% from 0.18% previously, following a Bottom Five finish this past week.

The latest week's carnage moved a number of groupings into the red in terms of year-to-date returns; even the leaders among those still showing gains saw sharply reduced cumulative returns in this latest week.

Consumer non-durables companies, one of the smaller losers this past week, took over as the best-performing sub-sector so far this year, although their return fell to 2.79% from 4.16% previously. They displaced the non-ferrous metals and mining group, which fell into second place overall as its total return fell to 2.27% from 4.71%.

Consumer non-cyclicals were returning 1.83%, although that was down from 3.38% the week before, while industrials have returned 1.55% so far this year, down from 3.44% before. Finance, which had been the sole name to avoid posting a weekly loss the week before, had a sizable loss (2.59%) in the most recent week), and it slid sharply to a 1.40% year-to-date return from 4.09% the week before.

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