Bear Stearns High Yield index suffers worst month ever in June, includes biggest one-day loss

New York, July 3 - The Bear Stearns High Yield Index suffered its worst month ever in June, including its biggest ever one-day loss.

Dragged down by WorldCom, Inc.'s plunge, the index fell 7.23% in June, including a drop of 4.23% on June 26.

The previous worst month was September 2001, when the index declined 6.8%, with August 1998 third at negative 6.3%, September 1990 fourth at negative 6.2% and August 1990 fifth at negative 5.1%

Noting the new one-day record plunge was far bigger than the previous biggest drop of 1.83% on Sept. 21, 2001, Bear Stearns analysts Michael Taylor and Mike Reiner pointed out that the previous worst performing months did not show such large movements in a single session.

"We believe volatility of returns may remain higher than in the past, given the greater number and volume of fallen angels in the index," the analysts commented.

At the start of June, the Bear Stearns index included 24 fallen angels with $54 billion par value of bonds. During the month two more were added, Briggs & Stratton and Goodyear, with $1.8 billion of bonds.

Looking ahead, Taylor and Reiner noted that WorldCom's troubles will have a diminished impact on the index.

Although it was the largest issuer at the start of June, making up 4.34% of the index, by the start of July it had fallen back to fourth at 1.4% of the index, behind Qwest Communications International Inc. at 2.7%, Charter Communications, Inc. at 1.9% and Allied Waste Industries, Inc. at 1.6%.

WorldCom bonds are currently trading flat but Taylor and Reiner said they will be included in the index until the company indicates it will not pay interest, misses a payment or files for bankruptcy.

With the latest price declines, Qwest is now the only issuer making up more than 2% of the index.

"Even 2% positions may be hard to justify for a portfolio manager depending on the credit, though they are much more reasonable when compared with the 4% weighting WorldCom represented at the start of June," the analysts commented. "Although more fallen angels and changes in market values of issues included in the index are likely, the need for an index that caps an issuer's weight of the composite arbitrarily may have become unnecessary."

Year to date, the index is now 4.57%. If telecoms are excluded the performance is positive 1.98%.

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