B of A High Yield Broad Market Index up 0.30% in week, year-to-date gain increases to 27.94%

By Paul Deckelman

New York, Dec. 22 - The Banc of America High Yield Broad Market Index rose 0.30% in the week ended Thursday Dec.18, its 18th consecutive weekly gain. That pushed its year-to-date cumulative return to a new peak of 27.94%. In the previous week ended Dec. 11, the index had risen 0.70%, for a year-to-date return of 27.55%, the high point for the year up to that time.

In the latest week, the index's spread over Treasuries remained at 500 basis points, the same as the previous week and up from the recently set new low for the year at 491 bps, but the yield to worst continued to narrow, to 7.89%, a new low for the year, from 7.93% the week before.

B of A's High Yield Large Cap Index was up 0.32% in the week ended last Thursday, its eighth consecutive weekly gain, following the 0.76% gain week before, and its year-to-date return stood at 31.44%, a new peak level for the year, up from 31.02% the previous week. Like the High Yield Broad Market Index, High Yield Large Cap's spread over Treasuries was essentially unchanged at 470 basis points over Treasuries, versus 469 bps the previous week and the year's low of 461 bps the week before that, but the yield to worst continued to come in, to 7.72%, a new low for the year, from 7.75% a week earlier.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,632 issues of $100 million or more, having a total market value of almost $500 billion, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 567 issues of $300 million or more having a total market value of over $301 billion. B of A sees both as reliable proxies for the $750 billion high yield universe.

Banc of America Securities analysts noted that the high yield market continues to show a "firm tone," with an active primary segment, with more than $3.3 billion of new debt having priced in the week through last Thursday. They also declared that "the demand for this asset class remained healthy as well," with high yield mutual funds reporting an inflow of $170 million in the week ended last Wednesday, as measured by AMG Data Services, whose weekly fund-flow statistics are seen by market participants as a key barometer of overall junk market liquidity trends.

On a credit basis, highest of the three credit tiers into which B of A divides its index - credits rated BB and BB+ and comprising 15.56% of the index - had a return of 0.42% on the week, outperforming the index. Next was the lower tier (issues rated B- and below, accounting for 37.40% of the index), which showed a 0.30% gain. Bringing up the rear, although not by much, was the middle credit tier, consisting of those issues rated BB-, B+ and B and making up 47.04% of the index, which returned 0.27%, The week before, the lower tier had led, with the middle and higher tiers tied for second place.

Advancing industry sectors led decliners in the latest week, 21-to-4, with two of the 27 industry groups into which B of A divides its high yield universe - satellite services and consumer non-durables - showing flat returns, neither gaining nor losing. This continued the recent trend of broad-based strength in the index; the week before, all 27 industry sectors had shown gains.

For a second consecutive week, steelmakers were clearly the strongest performers, although their index-based 1.66% return represents a moderating trend from the sizzling 4.26% the group posted the week before, as the industry continued to benefit from the weaker dollar and other sector factors that made the recent decision by the White House lifting tariffs imposed on foreign steel producers 14 months ahead of schedule essentially into a non-event.

Also for a second week in a row, international cable operators were the second-strongest sector, up 1.04%, following the previous week's 2.49% gain - normally enough for the top spot but relegated to a distant second by the steel surge.

Finance (up 0.95%), North American cable operators (0.81% better) and lodging (up 0.54%) rounded out the Top Five list of best-performing sectors in the most recent week. Finance had been on the Bottom Five list of the weakest performers the previous week, with a relatively paltry 0.35% return.

On the downside, chemical makers lost an index-worst 0.34% in the latest week. The week before, when all sectors showed gains, however small, consumer non-durables companies had the smallest, 0.20%.

Domestic wireline telecommunications operators (down 0.24%), technology (down 0.04%), and non-ferrous metals and mining (down 0.03%) were the other losing issues. As noted, satellite services and consumer-non-durables, with readings of flat zero, rounded out the latest week's Bottom Five list; the consumer non-durables, as noted, had been the previous week's worst performer.

On a year-to-date basis, international wireline telecom's cumulative gain fattened up to an index-best 74.09% from 73.76% the week before, while runner-up international wireless telecom, improved to 69.65% from a 69.11% return the week before.

While the steelmakers remain the weakest of the 27 sectors on a year-to-date basis and the only one whose cumulative return is still in single digits (after having spent most of the year up until the Dec. 4 week in the red), their index-leading performance in the latest week smartly improved that year-to-date gain for a second consecutive week to 7.61% from 5.85% the week before.

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