Banc of America High Yield Broad Market Index eases 0.04%, loss for year edges up to 0.26%

By Paul Deckelman

New York, June 7 - The Banc of America Securities High Yield Broad Market Index ended slightly lower in light, holiday shortened trading during the week that ended Thursday, easing 0.04% on the week, versus the 1.01% jump seen in the previous week ended May 27. The slight downturn brought the index's year-to-date loss to 0.26% from 0.22% the week before.

The market had an abbreviated session on May 28, closing at 2 p.m. ET, ahead of the Memorial Day holiday break, which kept the nation's financial markets closed on May 31 and was also seen having curbed market activity for the remainder of the week.

The index's spread over Treasuries narrowed to 486 basis points over from 494 basis points in the May 27 week, although the yield to worst increased to 8.59% from 8.52% the previous week.

Banc of America's more narrowly focused High Yield Large Cap Index has pretty much followed the same pattern as the High Yield Broad Market Index, with a 0.05% easing in the latest week, versus the 1.23% leap the week before; the 2004 year-to-date loss edged up to 1.19% from 1.14% the week before.

Large Cap spread narrows

Large Cap's spread over Treasuries - like that of the High Yield Broad Market Index - narrowed in the most recent week to 473 basis points over from 479 basis points in the week ended May 27. The yield to worst widened to 8.56% from 8.47% the week before.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,650 issues of $100 million or more, as the total market value of the issues declined to $493.2 billion from $496.4 billion the week before; the High Yield Large Cap Index, representing the most liquid portion of the high-yield world, tracked 584 issues of $300 million or more; total market value dipped to $295.3 billion from $298.3 billion the week before. Banc of America sees both as reliable proxies for the $750 billion high-yield universe.

On a credit basis, the lowest of the three credit tiers into which Banc of America divides its index (issues rated B- and below, accounting for 41.25% of the index) was the only tier in the black, up 0.04%. The middle credit tier - consisting of those issues rated BB-, B+ and B and making up 44.55% of the index - and the highest credit tier (those credits rated BB+ and BB, comprising 14.20% of the index) each had a 0.09% loss. The previous week, the lowest tier had again done best with a 1.32% gain, followed by the middle tier (up 0.87%) and the highest tier (up 0.61%).

Banc of America analysts noted that the decline in the High Yield Broad Market Index for the latest week was "small," and said the secondary market - which had bounced back smartly in the in the previous two weeks from a pronounced decline earlier in May that took its year-to-date results in to the red for the first time this year - continued to have a "firm" tone, despite the small loss.

The analysts said that the secondary in turn supported the new-deal market, with recent bond offerings "generally priced in the middle of the price talk." As of this past Thursday, $2.3 billion of new supply had priced during the week, with another $3.2 billion on the announced forward calendar.

Demand picks up

The analysts also noted a pick up of demand, with AMG Data Services reporting a high-yield mutual funds net inflow for the week of $565 million - the first such inflow seen after seven straight weeks in which more money left the funds, a key barometer of liquidity trends, than came into them.

Of the 23 industry groupings into which Banc of America divides its high-yield universe, 10 showed gains, 11 showed declines and two - entertainment and utilities - had a flat showing. That contrasted with the previous week, when all 23 subsectors had shown gains, although some of these had been quite modest.

Most of the gains or losses were relatively small - some on both sides of the divide just several hundredths of a percentage point - with only transportation showing a pronounced return either way, dropping an index-worst 1.03%.

In the week ended May 27, finance had been the weakest performer, showing just a paltry 0.12% gain, far smaller than the gains of most other industry groupings. In that May 27 week, the airline-heavy transportation sector - though usually a loser - was among the names on the Top Five list of best-performing groupings, when it rose a solid 1.46%.

PCS/cellular operators (down 0.36%), lodging (off 0.29%), cable/DBS operators, advertising-dependent media and chemicals (all off 0.27% on the week) rounded out the Bottom Five list of the weakest performers in the most recent week; PCS/cellular had been in the Top Five the week before, when it rose 1.74%.

Finance sector top gainer

On the upside, finance led all subsectors with a 0.28% return - a turnaround from the week before, when the subsector's 0.12% return was the smallest on any grouping. The best performer in that week before had been wireline telecommunications, up a robust 1.94%. Wireline, which has recently been recovering after a rocky stretch earlier in the year, was not the best performer, but it was again in the Top Five in the latest week, with a 0.22% return - the fourth straight week it has been among the best finishers.

Consumer non-durables companies (up 0.26%), steelmakers (up 0.20%) and non-ferrous metals and mining (up 0.17%) rounded out this past week's Top Five list. Steel had also been in the Top Five the week before - with a 1.68% return - in fact, it has now been in the Top Five three straight weeks. But consumer non-durables and non-ferrous metals and mining had, in fact, been in the Bottom Five the preceding week, when they had returned 0.45% and 0.29%, far smaller gains than most other industry groups.

On a year-to-date basis, consumer non-durables companies, helped by their modest return to the Top Five, fattened their index-best cumulative return to 4.01% from 3.74% the week before. The same holds for the non-ferrous metals and mining group, whose return for the year improved to 3.33% from 3.16%. The steelers, buoyed by their third straight week in the Top Five, rose to a 3.05% return from 2.84%. Consumer non-cyclicals were returning 2.40%, up from 1.94% the previous week, but chemicals, one of the Bottom Five finishers, retreated to 2.31% from 2.59%.

On the downside, the transportation group reverted to form with an index-worst showing after a rare upturn the week before and deepened the group's year-to-date loss to 11.44% from 10.51% previously.

Wireline telecom, buoyed by its fourth straight week in the Top Five, continued to dig out of the hole it had fallen into earlier in the year, its cumulative loss falling to 6.49% from 6.70% before.

Utilities showed a 3.17% loss, about unchanged from the week before, but latest week Bottom Fiver cable /DBS' yearly loss widened to 1.77% from 1.50% previously.

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