B of A High Yield Broad Market index plummets 2.61% on week; 2008 loss doubles to 5.11%

By Paul Deckelman

New York, Sept. 22 - The Banc of America Securities High Yield index nosedived by 2.61% in the week ended Friday, breaking a string of three consecutive gains, including its 0.15% upturn in the previous week ended Sept. 12.

That plunge caused the index's year-to-date loss to double to 5.11% from 2.56% the week before. That was the widest cumulative loss seen this year so far, eclipsing the previous 2008 low point, a 4.15% loss in the week ended March 14. The index's peak level for the year, a 1.86% cumulative gain seen over the two weeks ended May 16 and May 23, increasingly seems like ancient history.

The index showed losses the first three weeks of the year and continued in that negative trend most weeks through mid-March, but then nosed upward with seven straight weeks of gains through early May. After that, it turned choppy and inconsistent for several weeks, alternating gains, losses, and one week that saw neither a gain nor a loss, but a flat 0.00% reading. But more recently, the index has shown nine losses in the past 15 weeks, including five straight at one point, starting in mid-June.

With 38 weeks now in the books, there have been 18 weekly gains, 19 losses and the one unchanged week.

Spread bulges out

B of A analysts said the index's average spread over Treasuries ballooned out to 958 basis points from 876 bps the week before, and out from 883 bps the week before, the previous wide point for the year, seen in the week ended Sept. 5.

The spread's tightest level of the year was 651 bps in the week ended June 13, although even then, this year's spreads have been notably wider than the 613 bps seen at the end of 2007.

The index's yield to worst also gapped out sharply to a new 2008 high of 12.61%, versus 11.78% the week before and versus the previous high for the year of 11.82% in the Sept. 5 week. The 2008 low was 9.98% in the May 16 week.

The index tracked 1,547 issues of $100 million or more, up from 1,538 issues the week before, although its overall market value fell to $554.7 billion, a new low point for the year, from $566.7 billion the week before - the previous low 2008 total.

The index's total value thus moves still further below the 2007 year-end total of $595.3 billion, to say nothing of its peak level for this year at $614.9 billion in the May 23 week. B of A sees the index as a reliable proxy for the high-yield universe, which by some estimates is valued around $1 trillion.

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 unrated issues), the CCC rated credits and the single-B rated bonds each lost 3.11%, while BB rated paper did better, relatively speaking, with just a 1.70% loss.

That was a reversal of the trend seen over the previous two weeks; in the week ended Sept. 12, the BBs lost 0.61% - the second straight week in which they were the worst performers - while the CCCs led with a 0.60% rise and the single-Bs were up 0.55%.

Negative sectors grab lead

In the latest week, 37 of the 38 active industry sectors into which B of A divides its high-yield universe finished in negative territory, and just one - health care services - was in positive territory. In the previous week, 19 sectors were in the black, 18 were in the red and one - retail - finished unchanged, with a flat 0.00% reading.

At the beginning of the year, most weeks saw negative sectors dominate, but the breakdown essentially evened out after that. To date, sectors have shown more gains in 19 weeks, more losses in 18 weeks, and were evenly split one week.

Diversified financials week's worst sector

Among specific sectors, diversified financials was the week's worst-performing sector, in a reflection of the continued turmoil among financial names seen with the recent collapse of Lehman Brothers Holdings Inc. and problems afflicting other financials as well.

The diversified financials fell 8.07%, displacing the banks, which had easily been the previous week's cellar-dweller, posting an astonishing 22.69% drop in the Sept. 12 week - the second week in a row and third week in the previous four in which the banks had been the biggest losers, as well as the group's fourth straight finish among the Bottom Five worst-performing sectors. And the banks made it again this past week with a loss of 7.66%.

For the diversified financials, however, it was a sharp reversal, as the group had been among the best finishers the week before, with a 2.44% gain.

Automobiles (down 5.96%), real estate (down 4.98%) and technology (down 3.52%) rounded out the latest week's Bottom Five. It was the second straight finish among the worst losers for both real estate and the tech names, which also had that unwanted honor in the Sept. 12 week with losses of 6.45% and 1.14%, respectively. Autos, on the other hand, had been the single best-performing sector the previous week with a 5.04% gain.

Health care services tops for week

On the upside, health care services, as mentioned, was the only sector actually showing a gain, up 0.24%, to seize the top spot away from the previous week's champ, which was autos, as noted.

The latest Top Five list of the best-performing sectors was filled out by sectors which merely had smaller losses than the rest of their peers. These were insurance brokers (down 0.01%), entertainment (down 0.56%), food and drug retailing (down 0.68%) and food, beverage and tobacco (down 0.69%). Insurance brokerage had also been among the Top Five the previous week with a 0.50% gain.

Banks year's worst sector

On a year-to-date basis, banking remained at the bottom of the pile, as its year-to-date deficit worsened to 44.23% from 39.61% previously.

Diversified financials fell two positions in the rankings, to second-worst in the index from fourth-worst previously, as its performance as the worst loser on a weekly basis pushed its year-to-date loss out to 18.79% from 11.66%.

Advertising-dependent media, previously second-worst on the year, improved by one notch, relatively speaking, to just third-worst, although its cumulative loss deepened to 17.29% from 14.65%.

Gaming, lodging and leisure also moved one place away from the bottom, to fourth-worst from third, while its 2008 loss worsened to 14.60% from 12.43%.

Bottom-Five finisher real estate remained fifth-worst sector on the year, its loss increasing to 13.82% from 9.33%.

Wireless telecom tops for year

On the upside, wireless telecom remained the best-performer year to date, although its cumulative return fell to 6.23% from 9.09% previously.

Health care equipment and services was again second-best, although its return narrowed to 6.11% from 6.87%.

Health care facilities remained third-best, its return for the year at 4.89% versus 6.06% before.

Top Five finisher insurance brokerage, not previously among the leaders, jumped to fourth-best overall, by essentially holding steady at 4.24%, when other sectors were posting larger losses. It supplanted pharmaceuticals, whose return for the year dwindled to 2.97% from 4.31% the week before.

Entertainment hung onto fifth place on the year, although its return declined to 3.73% from 4.28%.

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