B of A High Yield Broad Market Index up 0.76%; 2004 gain rises to 1.30%

By Paul Deckelman

New York, Feb. 17 - The Banc of America Securities High Yield Broad Market Index rose 0.76% in the week ended last Thursday, Feb. 12, breaking a two-week losing streak which included the previous week's (ended Feb. 5) 1.06% decline. The latest week's gain pushed the index's year to date return back up to 1.30% from 0.53%, its low for 2004 so far, the week before.

Banc of America Securities did not officially issue the latest weekly numbers, due to the abbreviated session Friday and the market shutdown on Monday for Presidents' Day, but it made its raw data available to Prospect News.

The index had coasted through the latter part of 2003 and on into the first few weeks of 2004 in an amazing 23-week run of advances, buoyed by continued easy liquidity, before the winning streak came to a half in early February.

In the week ended Thursday, the index posted a spread over Treasuries of 492 basis points, slightly narrower than the previous week's 498 bps, the high for the year. Its yield-to-worst was 7.74%, down from the previous week's 7.90%, the high for the year.

B of A's High Yield Large Cap Index showed a similar, though more pronounced pattern; in the week ended Thursday, it gained 1.09%, breaking the two-week losing streak which included the previous week's 1.38% loss. The cumulative return for 2004 improved to 1.04% from the prior week's negative 0.06%, the low-point for the year so far.

Large Cap's spread over Treasuries - like that of the HY Broad Market Index - narrowed in the week ended Thursday, to 7.65%, while the spread also improved to 471 basis points from the previous week's 7.89% and 482 bps, both highs for the year.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,649 issues of $100 million or more, having a total market value of over $507 billion, up from $503 billion the week before, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 577 issues of $300 million or more having a total market value of about $305 billion, up from $302 billion previously. B of A sees both as reliable proxies for the $750 billion high yield universe.

Low-rated issues do best

On a credit basis, the lowest of the three credit tiers into which B of A divides its index - issues rated B- and below, accounting for 38.53% of the index - posted the best gain, 0.94%. This was followed by middle credit tier, consisting of those issues rated BB-, B+ and B and making up 46.34% of the index, which rose 0.75%. The upper credit tier (those credits rated BB and BB+ and comprising 15.13% of the index) had the smallest return of the three, 0.40%. The week before, the lowest tier had the worst loss (1.19%), followed by the middle tier (down 1.05%) and the upper tier (down 0.70%).

All of the 23 industry groups into which B of A divides its high yield universe were in the black in the latest week, a sharp turnaround from the previous week when only one - non-ferrous metals and mining - had showed a gain, against 22 decliners.

In the week ended Thursday, utilities had the best return of any group, 1.44%, dethroning non-ferrous metals and mining, which had been the best performing sub-sector in each of the previous two weeks, including the week ended Feb. 5, when, as noted, it was the only positive group, up 0.44%. That week, the utilities had been among the worst losers, down 1.68%.

Wireline telecommunications, and consumer non-cyclical names, both with a 1.25% gain, were the second-strongest sub-sectors in the most recent week. That was a sharp turnaround from the previous week, when the wireline subsector was the worst performer of all, down 2.97%.

PCS/cellular names (up 1.02%) and gaming (up 0.94%) rounded out the Top Five list of the best-performing sectors in the latest week; in the week ended Feb. 5, when virtually all subsectors finished in the red, PCS/cellular had been among the smallest losers, off a relatively modest 0.42% as it made the Top Five, while gaming had been on the Bottom Five list of that week's biggest losers, with a drop of 1.39%.

On the downside in the latest week, there really wasn't any, with all of the subsectors showing positive returns - only some showing considerably smaller gains than the rest.

Transportation weakest

Transportation was the weakest performer this past week, up a paltry 0.14%. The week before, as noted, wireline telecom had been the worst finisher, although the transportation group had been second-worst, with a 1.69% fall.

Industrials (up just 0.19%), steel (up 0.28%) consumer durables (up 0.34%) and non-ferrous metals and mining (up 0.36%) were the weakest performers in the most recent week; as noted, non-ferrous metals and mining had been the strongest finisher in each of the previous two weeks, and in three weeks out of the previous four, landing in the Top Five each of those four weeks.

On a year-to-date basis, the non-ferrous metals and mining group managed to hang onto the top spot despite its relatively weak performance in the Feb. 12 week, its return still growing to 4.76% from 4.38% the previous week. Finance remains in second place year-to-date, increasing to 3.80% from 3.32% previously, trailed distantly by technology names (up 2.32%) and consumer non-cyclicals (up 2.25%).

Wireline telecom continues to hold the unenviable distinction of having the year's worst cumulative return so far, although its solid Top Five performance this past week cut its year-to-date deficit to 0.81% from 2.03% previously. Wireline is the only one of the 23 subsectors currently in the red.

Other particularly weak subsectors year-to-date include publishing (up 0.12%), followed by lodging (up 0.30%) and healthcare (up 0.35%).

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