B of A High Yield Broad Market Index down 0.90%; year-to-date loss grows to 3.04%

By Paul Deckelman

New York, May 16 - The Banc of America Securities High Yield Broad Market Index fell for the fourth week out of the last five in the week ended May 12 and the seventh week out of the last nine, losing 0.90%. That's a reversal from the 0.43% gain recorded the week before ended May 5 and continues the generally negative trend of the last two months.

The index's year-to-date loss widened to 3.04% in the most recent week from 2.16% the week before.

The index's spread over Treasuries increased to 448 basis points from 435 bps the previous week while its yield to worst likewise widened to 8.38% from 8.18%.

The more narrowly focused High Yield Large Cap Index, which essentially mirrors the patterns seen in the HY Broad Market Index, also returned to its mostly negative recent pattern, losing 1.11%, after having gained 0.74% the week before. Its year-to-date loss bulged out to 3.69% after having come in to 2.61% the week before.

HY Large Cap's spread over Treasuries in the most recent week rose to 437 bps from 425 bps the previous week, and its yield-to-worst ballooned out to 8.29% from 8.11% previously.

In the latest week, the more inclusive HY Broad Market Index tracked 1,687 issues of $100 million or more, down from 1,690 the week before, while the overall market value of the issues slid to $517.1 billion from $525.7 billion 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, off from 611 the week before, as total market value eroded to $313.4 billion from $319.2 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 uppermost of the three credit tiers into which B of A divides its index - those issues rated BB+ and BB, comprising 17.53% of the index - had the best return (i.e., the smallest loss), down 0.62%. This was followed by the middle tier (those issues rated BB-, B+ and B, making up 45.89% of the index), which was down 0.73%. Bringing up the rear was the lowest of the tiers - those issues rated B- and below, accounting for 36.58% of the index - which fell 1.26%.

That represented a turnaround from the order of finish in the week ended May 5, when the middle tier had the best return, 0.51%, followed closely by the lowest tier, which returned 0.49%, while the top tier lagged behind with a 0.09% gain.

However, it represented a reversion to the exact pattern seen in each of the three weeks just before that. Also, the lowest credit tier has now also had the worst return of the three in five weeks out of the last six, no matter who else was on top.

All 23 of the industry sectors into which B of A divides its high-yield universe had negative returns in the most recent week - a turnaround from the 18 positive/five negative split seen in the May 5 week. But it was also a reversion to the pattern seen in most of the recent weeks in which the HY Broad Market index has been in the red, with the overwhelming majority of sectors showing losses, and a clean sweep of all 23 in some of those weeks.

B of A analysts noted the index's failure to sustain the previous week's gains, as well as the "broad-based" nature of the retreat, and also noticed the continued "lackluster" primary market performance, with just four deals totaling $555 million in proceeds having priced during the week through Thursday, versus three deals totaling $705 million which had priced in the equivalent period the week before.

They also observed that the weekly reporting high-yield mutual funds, seen as a gauge of market liquidity, showed their 13th consecutive outflow in the week ended last May 11, as $472 million more left them than came into them.

Transportation worst in week

The transportation issues had the biggest loss in the most recent week, falling 2.34% in response to Delta Air Lines Inc.'s warning about its liquidity problems and the possibility the troubled Atlanta-based airline carrier could be forced into bankruptcy. It takes over as the worst performer from entertainment, which had declined 0.48% in the week ended May 5. The transportation sector - heavy with the volatile bonds of the troubled airline industry - has now been among the Bottom Five worst-performing sectors in four weeks out of the last six.

Consumer durables weren't much better in the most recent week, plunging 2.25%, skidding lower on the liquidity woes of Collins & Aikman Products Co., which caused the Troy, Mich.-based automotive components manufacturer's bonds to nosedive and which pulled most of the other auto parts companies down as well. The sector has been among the Bottom Five in three weeks out of the last five.

Paper and packaging (down 1.29%) and advertising-dependent media and business services (both down 1.12%) rounded out the latest week's Bottom Five list. It was the third straight week on the list for paper and packaging, including a 0.23% Bottom Five return in the week ended May 5, and the second week in the last four for business services.

There was no upside in the conventional sense this past week; as has been the case in many of the recent weeks, the Top Five list of best-performing sectors merely included those with smaller losses than all of their other peers.

Healthcare tops for week

Healthcare had the smallest loss, at 0.17%, replacing utilities (a 2.22% jump in the week ended May 5) as best performer. Healthcare has now been in the Top Five in two weeks out of the past four.

Non-ferrous metals and mining (down 0.29%), PCS/cellular operators (off 0.31%), finance (down 0.34%) and publishing (down 0.47%) rounded out the Top Five, such as it was, in the most recent week. It was the second straight week in the Top Five for both publishing and PCS/cellular (up 0.74% and 0.63%, respectively, in the week ended May 5). Non-ferrous metals and mining has been in the Top Five in two weeks out of the last three, and finance in three weeks out of the last five.

Transportation worst for year

On a year-to-date basis, the transportation sector's index-worst performance in the latest week buried it deeper in its pit as 2005's worst sector, its loss expanding to 12.94% from 10.85% previously.

Consumer durables' almost-as-big weekly loss also translated into a sharp worsening of its cumulative deficit, to 8.26% from 6.16% previously. Bottom Fiver paper and packaging's year-to-date loss grew to 5.25% from 4.01% previously.

Finance tops for year

On the upside, Top Fiver finance's index-best 2005 cumulative return fell to 1.62% from 1.97% previously, while fellow Top Five name PCS/cellular's return retreated to 1.25% from 1.56% but was still good enough for second place year to date. As has now been the case for four straight weeks, no other industry sectors are in the black on a year-to-date basis.

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