B of A High Yield Broad Market Index up 0.22% on week, year-to-date return grows to 3.54%

By Paul Deckelman

New York, July 17 - The Banc of America Securities High Yield Broad Market Index rose 0.22% in the week ended Thursday, its third consecutive gain, including the 0.58% advance seen in the previous week, ended July 6.

That third straight gain seems to be establishing a nascent trend of strength, breaking out of the prior pattern of choppiness that had been seen since about mid-May - two weeks on the decline, followed by a small upturn in early June, then a completely flat reading, followed by two more downturns, Up till mid-May, the index had started the year strongly and had been moving steadily upward most weeks.

With its upward momentum apparently re-established, the index has now shown positive results in 11 weeks out of the last 18 and, over the longer term, in 24 out of the last 34 weeks, dating back to mid-November, according to a Prospect News analysis of the B of A data.

The index's year-to-date return grew in the most recent week to 3.54%, up from 3.31% the week before. It thus remains well above 2005's total 2.10% return, though below its peak so far for 2006, 4.08%, reached during the week ended May 11.

The index's spread over Treasuries, which in the previous week had tightened to 348 basis points from 356 bps, widened out to 359 bps in the most recent week. Its yield to worst, which had previously narrowed to 8.66% from 8.75%, was unchanged in the most recent week.

The index tracked 1,669 issues of $100 million or more, unchanged from the week before, while its overall market value declined to about $570.8 billion from $572.5 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, the uppermost of the three credit tiers into which B of A divides the HY Broad Market Index - those issues rated BB and BB+, comprising 24.61% of the index - had the best return, 0.35%. This was followed by the middle tier - those issues rated BB-, B+ and B, making up 42.61% of the index - which returned 0.19%. Bringing up the rear was the lowest tier - those issues rated B- and below, accounting for 33.23% of the index - with a 0.16% return.

In the previous week, the lower tier returned 0.73%, the upper tier was up 0.54%, and the middle tier gained 0.49% - the second straight week in which the tiers finished in that order, and the third consecutive week in which the lower tier led the others.

B of A analysts declared that "the average price of the index's bonds was virtually unchanged. However, returns accumulated unevenly over the week. The week started with strong returns and ended with a large negative return on Thursday as the market sold off in response to the developments in the Middle East and rising oil prices."

They furthermore said that total returns "were the result of declining risk-free rates on the one hand," with the yield on the 10-year Treasury decreasing 12 bps, "and widening spreads on the other," as spreads on the index widened out by 11 bps. That left the yield to worst unchanged at 8.66%.

From a credit-quality viewpoint, the BB-rated credits - similar to, but not exactly the same, as the uppermost of the High Yield Broad Market Index's three credit tiers - "outperformed B credits by a wide margin" - the BB paper returned 0.33% for the week, versus just 0.08% for the B paper, which is mostly, but not totally contiguous with the middle credit tier. However, they noted, that even though they were "further down the credit-quality spectrum," the CCC credits - which largely, but not completely, overlap the lowest of the credit tiers - returned 0.33%, the same as the BB paper.

Primary rebounds

Primary market activity, they noted, "rebounded to moderate levels from the drought of the prior week" with $2.1 billion of new bonds sold to investors during the week ended Friday, versus just $25 million of new paper having priced in the previous, holiday-shortened week. The new issuance in the latest week brought the total amount of bonds sold so far this year up to $83.9 billion.

And the analysts related that $72 million more came into the weekly reporting high-yield mutual funds in the week ended July 12 than flowed out of them - the second straight inflow, including the $97 million addition in the previous week, ended July 5, which had followed three straight weekly outflows in the $400 million apiece range. Even with that modest second straight inflow, the year-to-date net outflow still accumulates to about $3.5 billion, although the average weekly outflow number fell to $124 million from of $131 million previously.

There was not much real difference between the behavior of the automotive and the non-automotive components of the index. The automobile issues, representing about 14.26% of the index - the single largest sector - was up 0.28% in the most recent week, while the non-autos, comprising the remaining 85.74% of the index, gained 0.21%.

In the latest week, 32 of the 42 industrial sectors into which B of A divides its high-yield universe were in positive territory, with just four showing losses and six sectors showing neither gains nor losses, but rather, a flat 0.00% reading, although it should be noted that all six were brand-new sectors created in the sector restructuring that took place at the end of March, do not as yet have any issues represented in them. That was about the same as the previous week, which saw 33 sectors in the black, two on the downside, and seven flat readings - the six new sectors, plus heath care services. The two weeks' showing represents a return to the pattern seen in effect for most of this year, up until the previous several choppy weeks, of a strongly positive trend in sector breakdowns.

Solidly positive breakdowns have now been seen in 25 weeks out of the past 34.

Life/health insurers tops for week

Life/health insurers turned in the best performance in the week ended Thursday, as the group returned 1.20% to take over the top spot from the previous week's champion, the property/casualty insurers, who had returned an index-best 1.97% in the prior week, ended July 6. It was a solid rebound for the life/health insurers, which had been among the Bottom Five worst-performing sectors in the prior week with a 0.27% loss - the second time in four weeks it was in that group.

Food, beverage and tobacco (up 0.74%), entertainment (up 0.71%), textile and apparel (up 0.59%) and health care services (up. 0.54%) rounded out the Top Five list of best-performing sectors. Health care services, like index leader life/health insurers, had also been in the Bottom Five the week before, with a flat 0.00% return, its second straight finish there.

Techs worst for week

On the downside, technology issues had the worst showing, with a 0.49% loss for the week, taking over as the cellar-dweller from other health care, which had lost 0.73% in the week ended July 6.

Consumer durables/non-auto (down 0.34%), consumer products (down 0.32%) and pharmaceuticals (down 0.19%) were the only other sectors to finish in the red this week. Metals and mining (up 0.05%), which had the smallest positive return of any sector, rounded out the latest week's Bottom Five. It was a sharp reversal for consumer durables/non-auto and pharmaceuticals, which had each been in the Top Five the week before, with returns of 0.74% and 0.77%, respectively. Pharmaceuticals, however, has now been in the Bottom Five in two weeks out of the past three.

Autos tops for year so far

On a year-to-date basis, the automobiles sector remains by far the strongest performer so far, as its 2006 cumulative return rose to 10.84% from 10.53% previously. Entertainment remains a distant, though solid second, its year-to-date return rising to 7.21% from 6.46%. Industrial products, in third place, fell further off the pace with a smaller weekly rise, to 5.55% from 5.26%.

Life/health insurers worst for year

On the downside, the life/health insurers' 2006 loss narrowed markedly because of its index-leading weekly performance, to 1.91% from 3.08% previously, but it still remains easily the worst cumulative showing in the index.

For a second straight week, health facilities' year-to-date loss was nearly cut in half, to 0.47% from 0.82% previously, although it remained the second-weakest performer on that basis. No other sectors are in the red for 2006 so far, as oil and gas got back into the black for the year, rising to 0.17% from the previous week's 0.15% total loss.

© 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.