B of A High Yield Broad Market Index down 0.47% on week, 2008 return slips to 1.26%

By Paul Deckelman

New York, May 12 - The Banc of America Securities High Yield Broad Market Index fell 0.47% in the week ended Friday - its first loss after seven consecutive weekly gains dating back to mid-March, including the 1.28% jump seen in the previous week ended May 2.

That now-interrupted winning streak represented a radical departure from the pattern of mostly weakness that had been seen before that since the start of the year. The index fell for the first three weeks of 2008, blipped back upward for two weeks, then headed back downward for three more weeks. After that, it alternated stretches of weakness and strength. But following two weeks in early March in which losses were recorded, the next seven weeks were all to the upside. With 19 weeks now in the books, the index remains pretty much evenly split between weekly gains and losses, with 10 of the former against nine of the latter.

On a year-to-date basis, the index's return slipped to 1.26% in the latest week from the 1.74% cumulative gain seen the week before, the high point for 2008 so far.

The year-to-date return has only been in the black over the past three weeks, after having spent the first 16 weeks of 2008 languishing in the red; the index hit its low point, a 4.15% cumulative loss, in the week ended March 14, after which it began to turn back upward.

In 2007, the index compiled a final cumulative return of 1.85%, with 32 weekly gains against 20 losses, swinging between a high of 4.72% seen about a year ago and a low of a 0.25% loss last August. That 2007 return, in turn, was far smaller than the index's robust 2006 finish of 11.89%.

Spread, yield widen, total value eases

B of A analysts said that the index's average spread over Treasuries was 709 basis points, having widened from 677 bps the week before, the tightest point for the year so far. But it remains in considerably from the 862 bps level seen in the March 14 week, the wide point for 2008 so far. Spreads so far this year have been notably wider than the 613 bps mark at which the index ended 2007, as well as its 2007 high point of 621 bps.

The index's yield to worst, after having narrowed the week before to its low for 2008, 9.99%, versus 10.24% seen in the week ended April 25, rose back to 10.13% in the latest week. The yield to worst still remains well below its high point for the year of 11.16% seen in the March 14 week.

The index tracked 1,561 issues of $100 million or more, up from 1,558 issues the week before, although its overall market value eased to $606.7 billion from $607.1 billion previously. However, the total value figure remains above the 2007 year-end total of $595.3 billion on 1,568 issues - a mark it only reached and passed for the first time this year in the May 2 week. B of A sees the index as a reliable proxy for the high-yield universe, which by some estimates is around $1 trillion in value.

Upper tier back on top

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 20.30% of the index - had the best return, relatively speaking, edging up 0.09%, the only one of the three finishing in positive territory. This was followed by the middle tier - those issues rated BB-, B+ and B, making up 43.72% of the index - which lost 0.41%. The lowest tier - those issues rated B- and below, accounting for 35.98% of the index - brought up the rear with a 0.82% loss.

That broke a three-week stretch in which the lower tier had dominated, followed by the middle tier and then the upper tier; in the previous week ended May 2, the lower tier jumped 1.97%, with the middle tier showing a 0.90% gain and the upper tier lagging behind with a 0.80% return. It also represented a departure from the recent pattern of lower-tier strength - it had been on top four times in six weeks through the May 2 week - and corresponding upper-tier weakness, which had seen the top tier at the bottom of the pile in five weeks out of six through that May 2 week. The middle tier has meanwhile now lived up to its name and found itself sandwiched between the other two tiers over four consecutive weeks.

The latest week also marked the abrupt end of a seven-week winning streak, dating back to the week ended March 21, in which all three credit tiers had finished in the black; before that, all three tiers had consistently shown losses in five weeks out of the six through the March 14 week.

By the ratings categories for the three major baskets of credits into which B of A divides the index (excluding the relatively small group of issues which are not rated), all three categories ended in the red this past week. CCC-rated paper - which includes many, but not all, of the lower-tier credits - underperformed the rest of the index, tumbling 0.82% on the week. This was followed by the B-rated credits - similar to, but not exactly the same as the middle tier - which lost 0.65%, while the BB-rated bonds (the upper tier partially, but not completely, overlaps this subset) eased by 0.01% on the week.

Junk, CDX spreads widen

The analysts noted that the average high-yield spread widened by 31 bps in the most recent week, while the spread on the CDX HY index ballooned out by 64 bps, to 588 bps.

The analysts noted that weekly reporting high-yield mutual funds saw an inflow of $611.9 million in the week ended Wednesday, according to statistics compiled by AMG Data Services. That followed the $297.2 million inflow seen in the previous week ended April 30.

Negative sectors regain control

In the latest week, 20 of the 40 industry sectors into which B of A divides its high-yield universe were in negative territory, 18 sectors had positive returns and two sectors had flat 0.00% readings, neither a loss nor a gain. However, it should be noted that these sectors - credit insurance and leisure equipment and products - are relatively new sectors created in the sector restructuring that took place in 2006, but even at this relatively late date they still do not have any issues represented in them. In the previous week, 37 sectors finished in the black, one was in the red and the two newer sectors had flat readings.

The latest week's results snap a seven-week stretch of mostly very dominating wins by the positive sectors, which had represented a departure from the negative trend that had been seen for most of the year before that. Positive and negative breakdowns remain about evenly split, with 10 positive weeks and nine negative ones in the 19 weeks since the start of the year.

Diversified financials week's worst sector

The diversified financials sector was the week's single-worst performer, falling 1.84% to take that unwanted honor from the previous week's cellar-dweller, banking, which had lost 0.11% in the May 2 week - the only sector actually finishing in the red that week. It was the second time in three weeks that the diversified financials finished at the bottom, part of a recent zig-zag pattern which has seen the volatile sector pretty much alternating between the Top Five and the Bottom Five over the course of a number of weeks.

Health care facilities (down 1.59%), automobiles (down 1.47%), technology (down 1.20%) and retail (down an even 1%) - rounded out the latest week's Bottom Five list of the worst-performing sectors. It was a sharp comedown for the automotive group, which had been among the Top Five best-performing sectors the previous week with a 2.63% gain.

Ad-dependent media week's best sector

On the upside, advertising-dependent media jumped 1.47% to take over the top spot from the previous week's champion, consumer non-cyclical/other, which had led the way in the May 2 week with a 4.35% bulge; market-watchers saw ad-dependent media helped by strong quarterly numbers-driven performances by telephone directory publishers Idearc Inc., R.H. Donnelley Corp. and the latter's Dex Media Inc. subsidiary.

Pharmaceuticals (up 0.77%), life/health insurance (up 0.59%), textile and apparel (up 0.55%) and banks (up 0.54%) rounded out the latest week's Top Five list. It was a solid comeback for the banks - the previous week's worst performer and only actual losing sector, as previously noted - and life/health insurance, which had been among the Bottom Five in the previous week - its third straight week there - with a modest 0.20% return.

Banking still top 2008 sector

Banking remained clearly the best performer on a year-to-date basis, helped by its weekly finish among the Top Five, which pushed its return for the year out to 9.44% from 8.86% previously. Electric utilities remained a distant second-best, even as its cumulative return fell to 5.36% from 5.92% the week before. Pipelines moved up one position in the standings, to third-best on the year from fourth previously even as its total return decreased slightly to 4.94% from 5.02%, as the previous third-place holder, health care facilities, tumbled several notches.

Health care equipment and services moved up two positions, to fourth-best from sixth, its year-to-date showing improving to 4.48% from 4.33%. Meanwhile, health care facilities - previously the third-strongest performer on the year, as noted - fell two notches to fifth place, its Bottom Five weekly performance slashing its total return to 4.17% from 5.85%.

The previous week's Number Five, autos, another Bottom Fiver this week, dropped out of leadership contention altogether, its 2008 return falling to 3.39% from 4.92% the week before. Metals and mining, not previously among the leaders, rose to sixth-best in the index, its return for the year swelling to 3.92% from 3.73%.

Ad-dependent media worst '08 sector

On the downside, advertising-dependent media - despite its index-best weekly performance, as already noted - remained the worst-performing sector on the year, although its 2008 loss narrowed to 5.32% from 6.70% the week before. Fellow Top Fiver life/health insurance remained second-worst performer on the year, but its good weekly showing narrowed its 2008 loss to 5.02% from 5.57%. Insurance brokerage was still the third-weakest sector in the index year to date, although its loss narrowed to 4.95% from 5.03%.

Gaming, lodging and leisure was again the fourth-weakest year-to-date performer, its cumulative loss widening to 4.87% in the latest week from 4.34% before. Consumer non-cyclical/other was the fifth-worst 2008 performer, just like the week before, its loss widening to 3.78% from 3.17%. And paper and forest products stayed on as the sixth-weakest grouping in the index, its total loss expanding to 2.63% from 2.42% the previous week.

© 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.