B of A High Yield Broad Market Index eases 0.06% on week, year-to-date return falls to 3.48%

By Paul Deckelman

New York, May 30 - The Banc of America Securities High Yield Broad Market Index dipped 0.06% in the week ended Thursday, its second consecutive loss following three straight weeks of advances. In the previous week, ended May 18, the index dropped 0.52%.

The index's year-to-date return retreated to 3.48%, down from 3.54% the previous week, although it still remains up considerably from 2005's total 2.10% return.

Besides being the second consecutive weekly loss, it was still only the fourth loss in the last 11 weeks, the fifth in the past 15, the seventh in the past 27 weeks, dating back to mid-November, and over the longer term, the 17th loss in the past 51 weeks, according to a Prospect News analysis of the B of A data.

The index's spread over Treasuries, which in the previous week had ballooned to 332 basis points from 312 bps before that, continued to increase, to 337 bps in the most recent week. Its yield to worst, which had previously widened out to 8.32% from 8.18%, rose to 8.38% in the most recent week.

The index tracked 1,698 issues of $100 million or more, up from 1,687 the week before, and its overall market value went up to about $581.5 billion from $576.6 billion the previous week. B of A sees the index as a reliable proxy for the nearly $800 billion high-yield universe.

Top credit tier outperforms

On a credit-quality basis, all three of the credit tiers into which B of A divides the HY Broad Market Index showed losses, but within a very tightly-spaced range of just eight-hundredths of a percentage point. The uppermost of the three - those issues rated BB and BB+, comprising 23.86% of the index - had the smallest loss, down 0.01%, followed by the middle tier - those issues rated BB-, B+ and B, making up 41.74% of the index, which eased 0.05%. Bringing up the rear was the lower tier - those issues rated B- and below, accounting for 34.39% of the index - was off 0.09%.

It was the second consecutive week in which the tiers all showed losses and ended in that exact order. In the week ended May 18, the upper tier lost 0.45%, the middle tier was down 0.48% and the lower tier lost 0.62%. It was also the 13th week in the last 16 in which the middle tier has now lived up to its name and has ended sandwiched between the other two. The last two weeks represent a departure from two other patterns that had recently held sway. Prior to the week ended May 18, the lower tier had dominated for eight straight weeks, and over the longer term, in 11 weeks out of the previous 12. At the same time, the upper tier had finished at the bottom of the pile in 18 weeks out of the prior 31.

Performance fluctuates

B of A analysts said that "following a weak start, the high-yield index ended the week on a strong note, as economic data on the soft side of expectations began to trickle in by mid-week, inflation fears moderated, and volatility receded from the peak levels reached on Tuesday, May 23." They said that the slight loss for the week was the result of the final two up days in the week offsetting the three prior weak ones. They noted that while the average spread on the index widened out by 5 bps, the 10-year Treasury remained almost unchanged on the week.

The analysts further said that "with the spread widening of the general market, low-quality paper underperformed, whereas high-quality credits outperformed the index." Specifically, they said, CCC-rated bonds - which largely, but not completely, overlap the lower of the index's three credit tiers - lost 24 bps in excess return, while BB credits (similar to, but not exactly the same, as the upper credit tier) lost only 9 bps. Its B-rated paper -mostly, but not totally contiguous with the middle credit tier - lost 11 bps.

"Contrary to the overall market," the B of A analysts continued, "the auto sector had a strong week," tightening by 5 bps and generating 27 bps of excess return and 0.36% of total return, helped by an upturn in General Motors Corp. paper and that of its General Motors Acceptance Corp. financial arm, on news reports that as many as 20,000 GM hourly workers have so far accepted the carmaker's offer for early retirement buyouts, an offer which still has about a month to run. That in turn towed the bonds of GM rival Ford Motor Co. and troubled former GM subsidiary Delphi Corp. higher, as well as most other automotive sector names. The non-automotive 86.37% remainder of the index, by way of contrast, lost 0.12%.on the week, although its year-to-date return remains a respectable, if not necessarily spectacular, 2.89%.

Issuance slows

The analysts also observed that new issuance "slowed substantially" during the week, citing "increased uncertainty in the market" for the fall-off. A mere $300 million of new bonds priced in the week through Friday's close, a sharp drop from the $4.7 billion of new issuance in the prior week. B of A calculated that May issuance so far has totaled $12.7 billion, up from $12.4 billion the week before, and said year-to-date issuance rose to $66.8 billion from the previous week's $66.5 billion total.

And the analysts related that $346 million more left high-yield mutual funds than came into them in the week ended Wednesday, according to AMG Data Services. The year-to-date net outflow among weekly reporting funds increased to about $2.2 billion, while the average weekly outflow rose to $107 million. The fund flow numbers are an indicator of overall market liquidity trends.

In the latest week, 10 of the 42 industrial sectors into which B of A divides its high-yield universe were in positive territory, against 25 negatives and seven sectors showing neither gains nor losses, but rather, a flat 0.00% reading (although it should be noted that six of the seven - the exception was health care facilities - were brand-new sectors created in the sector restructuring that took place at the end of March, and they do not as yet have any actual issues represented in them).

That was a continuation of the trend established the previous week, when three sectors finished in the black, 33 were in the red and six had flat readings. The most recent two weeks represents a sharp break with the recent pattern of strongly positive sector breakdowns, which through the May 11 week had been seen in 22 of the previous 25 weeks.

Cable/DBS worst for week

Cable/DBS had the biggest loss on the week, losing 0.49%, replacing the prior week's cellar-dweller, entertainment, which plunged 1.19% in the week ended May 18.

Consumer products (down 0.33%), consumer non-cyclicals/other (down 0.31%), oil and gas (down 0.29%) and metals and mining (down 0.26%) rounded out the latest week's Bottom Five listing of the worst-performing sectors. Consumer non-cyclicals/other has now been in the Bottom Five in two weeks out of the past four.

Autos tops for week

On the upside, autos, as noted, far outperformed the rest of the market, with a 0.36% return, dislodging the previous week's champion, banks, which had returned 0.61% in the May 18 week. The auto sector has now been among the Top Five best finishers in two weeks out of the past three.

Food and drug retailers (up 0.20%), other health care (up 0.10%), and the health care equipment and services and wireline telecommunications sectors (each up 0.08%) rounded out the latest week's Top Five. It was a rebound for wireline, which made the Bottom Five in the May 18 week with a 0.97% loss - the third time in five weeks in which it had been among the index's laggards. Health care equipment and services has meantime now been in the Top Five in two weeks out of the past three.

Autos tops for year

On a year-to-date basis, the automobiles sector's cumulative return rose to 8.08% from 7.70% previously, as it remained the clear 2006 leader so far. Entertainment retreated to 6.34% from 6.47% but maintained its hold on second place.

Industrial products stayed in third place, although its yearly return decreased to 5.88% from 5.99% previously. Top Fiver health care and equipment services took over sole possession of fourth place with a 5.16% return, up from 5.08%. Retail, which had shared fourth place the week before, dropped back to fifth, with a 5.12% return, staying just ahead of paper and packaging, whose return increased to 5.06% from an even 5.00% previously.

Life, health insurers worst for year

On the downside, the life and health insurers' 2006 loss so far widened to 1.94% from 1.76% previously, meaning the sector decisively remains the worst-performing grouping.

Health care facilities, unchanged from the previous week's 0.23% cumulative loss, remains the only other sector in the red so far this year. Leaving out the sectors with flat paper returns for the year because no bonds trade in them yet, oil and gas fell to a 0.76% cumulative return from 1.05% previously.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.