B of A High Yield Broad Market Index down 0.83%, year-to-date loss grows to 1.67%

By Paul Deckelman

New York, April 18 - The Banc of America Securities High Yield Broad Market Index was once more in negative territory in the week ended April 14, for the fourth week in the last five, losing 0.83%. That was a reversal of the 0.71% gain seen in the previous week ended April 7 and a return to the losing pattern seen during the three weeks before that.

The index's year-to-date loss, which had headed downward to 0.85% in the week ended April 7, once again widened out in the most recent week, to 1.67%.

The index's spread over Treasuries ballooned to 398 basis points in the most recent week, up from 362 bps the previous week. Its yield to worst meantime widened out to 7.95% from 7.69% the week before.

The more narrowly focused High Yield Large Cap Index, which generally mirrors the patterns seen in the HY Broad Market Index, lost 1.08% in the latest week -also its fourth loss in the last five weeks - reversing the 0.94% rise seen in the week ended April 7. Its year-to-date loss swelled to 2.28% from 1.22% the previous week.

HY Large Cap's spread over Treasuries in the most recent week zoomed to 390 bps from 349 bps the previous week, and its yield to worst increased to 7.90% from 7.59% previously.

In the latest week, the more inclusive HY Broad Market Index tracked 1,692 issues of $100 million or more, down from 1,696 the week before, while the overall market value of the issues declined to $529.2 billion from $535.9 the previous week.

The HY Large Cap Index, representing the most liquid portion of the high-yield world, meantime tracked 610 issues of $300 million or more, down from 612 the week before, as total market value decreased to $322.6 billion from $327.6 billion. B of A sees both as reliable proxies for the $750 billion high-yield universe.

Top credit tier outperforms

On a credit-quality basis, the topmost of the three credit tiers into which B of A divides its index - those issues rated BB+ and BB, comprising 18.33% of the index - had the best return (i.e., the smallest loss) in the most recent week, when it was down 0.83%. The middle tier - those issues rated BB-, B+ and B, making up 49.27% of the index - was next, losing 1.02%, while the bottom tier - those issues rated B- and below, accounting for 32.41% of the index - was up 1.30% on the week.

In the previous week, the middle tier had the best showing at up 0.73%, although the top tier was not far behind with a 0.71% return, and even the lowest tier was almost tied with the others, with a still-respectable 0.68% return.

Twenty-two of the 23 industry sectors into which B of A divides its high-yield universe had negative returns in the latest week - a strong reversal of the split seen in the previous week, when 21 out of 23 were in positive territory, and a reversion to the pattern seen in the three previous weeks, when all 23 groupings were in the red.

B of A analysts noted that the high-yield market had been "unable to sustain last week's gains" and that the weakness was "broad-based" with almost all sectors in the red. They observed that primary market activity picked up substantially, with $1.65 billion of proceeds from five issues priced through Thursday, versus just one deal worth $100 million having priced in the comparable period of the previous week. The analysts also noted a ninth straight week of outflows from weekly reporting high-yield mutual funds, a measure of market liquidity trends, as an additional $196 million of cash left the funds.

Steelmakers worst for week

In the most recent week, steelmakers were the worst performers in the index, losing 1.87%. In the previous week, finance had been the weakest sector, with a 0.28% loss. The steelers have now been among the Bottom Five worst-performing sectors in two weeks out of the last three.

Consumer durables - including such steel industry customers as automotive parts makers - fell 1.82% in the most recent week, as the parts companies, such as Collins & Aikman Corp. and Dura Automotive Systems Inc., continued to be dragged lower by the weakness of their top customers, auto industry leaders General Motors Corp. and Ford Motor Co. They've been among the Bottom Five in two weeks out of the last five.

Technology (down 1.59%), cable/DBS operators (off 1.48%) and non-ferrous metals and mining (down 1.23%) rounded out the Bottom Five in the latest week. It was a reversal for the technology and non-ferrous metals and mining groups, each of which had made the Top Five list of the best-performing sectors in the week ended April 7, when they both returned 0.98%. Technology has now been among the Bottom Five names in two weeks out of the last three.

Finance tops for week

On the upside, only one sector was actually up on the week - finance, which managed to eke out a 0.03% gain. As mentioned, finance had been the worst finisher the previous week, but it has been among the Top Five in four weeks out of the last six.

The rest of the latest week's Top Five consisted of sectors which merely had smaller losses than their peers, including consumer non-cyclical names and chemicals (both down 0.41%), energy (down 0.42%) and gaming (down 0.45%).

The consumer non-cyclical and chemicals sectors had been in the Bottom Five in the week ended April 7, although they did not post losses, but only had much smaller gains (0.34% and 0.46%, respectively,) than almost all of the other sectors. Chemicals, though, have been in the Top Five in three weeks out of the last five.

Transportation worst for year

On a year-to-date basis, the transportation sector - weighed down by the volatile bonds of the troubled airline industry - remains the single worst-performing grouping, its 2005 cumulative deficit deepening to 8.14% from 7.61%.

Bottom Five name consumer durables' year-to-date loss worsened to 5.29% from 3.54%, while steel's index-worst loss in the most recent week widened its 2005 loss to 3.25% from 1.41% the week before. Bottom Fiver cable/DBS's deficit ballooned to 2.99% from 1.53%.

Other sectors showing notable year-to-date losses include consumer non-durables, whose cumulative loss grew to 2.42% from 1.71% the week before; paper and packaging, at negative 2.38%, widening out from negative 1.41% the week before; Bottom Fiver technology, down 2.32% from 0.72% before; and utilities, whose loss widened to 2.11% from 1.07%.

Finance tops for year

On the upside, finance's index-best small gain gives it a little more of a hold on the top spot year to date, its return firming to 1.75% from 1.72%, as second-place PCS/cellular's cumulative gain drops back to 1.04% from 1.60%. Business services, whose 2005 showing so far fell to just 0.25% from 1.12%, is the only other sector in the black on a year-to-date basis.

The only two other sectors that had been barely in the black the previous week swung back into negative territory this time around - chemicals (down 0.16% from up 0.25% the week before, despite finishing among the Top Five this past week with a relatively small loss), and Bottom Fiver non-ferrous metals and mining, which went from a 0.13% cumulative gain to a 1.10% year-to-date loss.

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