B of A High Yield Broad Market Index falls 1.15%, year-to-date return dives into the red

By Paul Deckelman

New York, March 29 - The Banc of America Securities High Yield Broad Market Index slid 1.15% in the week ended March 24, its biggest loss so far this year, surpassing the 0.84% loss seen just the week before.

The two big back-to-back losses would seem to have re-established the decidedly negative trend seen in the index in the first few weeks of 2005 and swung the year-to-date return back into the red with a cumulative loss of 0.80%, versus the previous week's 0.35% year-to-date gain.

The index's spread over Treasuries ballooned out for a second straight week, to 343 basis points from 324 bps the week before - itself a sharp widening from the relatively trim 300 bps spread seen in the week ended March 10. Its yield to worst meantime widened out to 7.64% from 7.28% the week before.

Banc of America Securities did not formally publish its index this past week due to the market closure on Friday, its usual day of issue, but made its data available to Prospect News.

Large Caps down 1.28% for week

The more narrowly focused High Yield Large Cap Index, following the pattern seen in the HY Broad Market Index, nosedived 1.28% in the week ended Thursday, on top of a 1.06% loss the week before, and its year-to-date return plummeted to a 1.33% loss from the 0.05% cumulative loss the previous week. HY Large Cap's spread over Treasuries in the most recent week increased sharply to 332 basis points from 312 bps - itself a sharp widening out from 285 bps the week before that - and its yield to worst rose to 7.58% from 7.20% previously.

In the latest week, the more inclusive HY Broad Market Index tracked 1,698 issues of $100 million or more, down slightly from 1,699 the week before, while the overall market value of the issues slid to $541.2 billion from $547 billion the previous week.

The HY Large Cap Index, representing the most liquid portion of the high-yield world, meantime tracked 616 issues of $300 million or more, up from 614 the week before, but total market value decreased to $332.3 billion from $335.7 billion. B of A sees both as reliable proxies for the $750 billion high-yield universe.

Middle credit tier underperforms

On a credit-quality basis, the middle of the three credit tiers into which B of A divides its index - those issues rated BB-, B+ and B, making up 44.82% of the index - had the worst loss, at 1.26%. This was followed by the bottom tier - those issues rated B- and below, accounting for 37.08% of the index - which lost 1.10%. The top credit tier - those issues rated BB+ and BB, comprising 18.10% of the index - had the smallest loss, 0.96%.

It was a sharp reversal of the recent trend, which had seen the middle credit tier having had the best showing and the top tier the worst, in four weeks out of the previous five. In the week ended March 17, the lowest tier lost 0.96%, the top tier lost 0.90% and the middle tier lost 0.74%.

For a second consecutive week, all 23 of the industry sectors into which B of A divides its high-yield universe had negative returns - a sharp turnaround from the trend which had been seen in most of the previous recent weeks since about mid-January, when most, or in some cases, all of the industry sectors had positive returns.

Consumer durables weakest

Consumer durables companies had the biggest loss in the most recent week, down 1.85%. The sector - steered lower by the skidding fortunes of high-yield automotive parts makers like Collins & Aikman Products Co. and Dura Automotive Systems Inc., which last week warned it would post a quarterly loss - had also been among the Bottom Five worst-performing sectors in the week ended March 17, when it lost 1.24%, and it has now been in the Bottom Five over six weeks of the last eight.

Consumer durables took over the unenviable distinction of worst performer from the airline-heavy transportation grouping, which held it in the March 17 week with 1.79% loss - transportation's second straight week as worst performer and fourth out of the previous five weeks, dating back to mid-February. But this past week, the sector's 1.02% loss didn't even earn it a spot in the Bottom Five.

Instead, the Bottom Five was filled out by utilities (down 1.55%), paper and packaging (down 1.44%), cable/DBS (down 1.35%) and advertising-dependent media (down 1.34%).

It was the second straight week among the Bottom Five for utilities, which had also been there in the March 17 week with a 1.10% loss, and for cable/DBS operators, which lost 1.41% that previous week.

For a second straight week, there was no upside in the conventional sense - only sectors posting smaller losses than the rest of their peers.

Finance best performer

Finance had the smallest loss, 0.48%, replacing business services, which had the smallest loss in the week ended March 17, 0.30%. Finance has now been among the Top Five best-performing sectors (or, in this case, least-worst performing) for three straight weeks, including the March 17 week, when it lost a relatively modest 0.49%.

PCS/cellular operators had the next-smallest loss this past week, down 0.53%. The Top Five was rounded out by healthcare (down 0.64%), lodging (down 0.69%) and steel (down 0.77%).

In the previous week, PCS/cellular had been among the Bottom Five with a 1.51% loss, and in fact had been there in two weeks out of the previous three. Healthcare has now been among the Top Five sectors in two weeks out of the last three.

Transportation worst for year

On a year-to-date basis, transportation - despite having not been among the Bottom Five worst finishers this past week - remains clearly the worst performer, widening its cumulative loss to 7.02% from 6.06% the week before.

Repeat Bottom Fiver consumer durables' year-to-date loss widened to 3.43% from a 1.62% loss the week before, pushed well down by its index-worst performance in the most recent week. Other sectors widening their year-to-date losses to notable proportions include Bottom Fivers cable/DBS, whose loss grew to 1.77% from 0.44%, and utilities, which swung to a 1.27% loss from a 0.29% gain the previous week; healthcare, whose loss widened to 1.25% from 0.61% despite a Top Five finish this week; entertainment, whose loss widened to 1.22% from 0.07%; technology, which swung to a 1.09% loss from a 0.10% gain; and lodging, whose loss widened to 1.02% from 0.32% the week before, despite a Top Five finish on the week.

Finance tops for year

On the upside, finance, with the smallest loss of any sector on the week, managed to hang onto undisputed possession of the top spot year to date, even as its return shrank to 2.55% from 3.04% the week before.

PCS/cellular's relatively modest loss on the week only cut its cumulative return to 1.06% from 1.59%, allowing it to move back into second place past business services, whose year-to-date return diminished to 0.53% from 1.85%. With all sectors posting losses, some of more than 1% on the week, only a few other sectors remain in positive territory year to date, including chemicals (up 0.26%), non-ferrous metals and mining and consumer non-durables (both up 0.09%), and industrials (up 0.02%).

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