B of A High Yield Broad Market Index up 0.39%; year-to-date return improves to 5.09%

By Paul Deckelman

New York, Sept. 13 - The Banc of America Securities High Yield Broad Market Index gained 0.39% in the week ended Sept. 9, its sixth consecutive weekly gain, exactly matching the 0.39% advance seen in the previous week. The index's year-to-date return pushed up to yet another new cumulative high for the year, at 5.09%, up from 4.68% the week before, which had been the previous year-to-date peak level.

Banc of America did not formally publish the weekly index in the week ended Sept. 2 due to the Labor Day holiday break, which saw an early market close on Sept. 3 followed by a complete market closure on Sept. 6, but it did provide Prospect News with the underlying raw data.

Apart from being the sixth consecutive weekly advance, the latest week's gain was also the 13th in the last 14 weeks and 15th in the last 17 weeks. The index has strongly turned back into positive territory over that stretch, dating back to late May, after the pronounced downturn it had suffered in late April and early May.

In the latest week, the index's spread over Treasuries narrowed to 448 basis points from 456 basis points previously, while its yield to worst tightened to 7.76% from 7.82%.

Large Caps up 0.46% for week

The more narrowly focused High Yield Large Cap Index continued to largely follow the same pattern as the Broad Market Index, rising 0.46% in the latest week, on top of the 0.44% gain the week before. On a year-to-date basis, Large Cap's cumulative 2004 return rose to 4.63%, its new peak level for 2004, from 4.15% the week before, which had been the previous high point.

Large Cap's spread over Treasuries came in to 432 basis points from 441 basis points the week before, while its yield to worst meantime improved to 7.67% from 7.74% previously.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,646 issues of $100 million or more, as the total market value of the issues rose to $510.7 billion from $509.2 billion the week before. The High Yield Large Cap Index, representing the most liquid portion of the high-yield world, meantime tracked 590 issues of $300 million or more; total market value increased to $308.2 billion from $307.7 billion the week before. Banc of America sees both as reliable proxies for the $750 billion high-yield universe.

On a credit-quality basis, the lowest of the three credit tiers into which Banc of America divides its index (issues rated B- and below, accounting for 40.57% of the index) had the best return for the fourth consecutive week, with a 0.49% gain. The topmost credit tier - those issues rated BB+ and BB, comprising 14.89% of the index -, after having been on the bottom for three straight weeks, had the next-best return, 0.33%, followed closely by the middle credit tier (consisting of those issues rated BB-, B+ and B and making up 44.54% of the index), just a step behind at 0.32%. In the previous week, the lowest tier returned 0.43%, the middle tier 0.37% and the top tier 0.36%, the third straight week the tiers had finished in that order.

Banc of America analysts noted that the strongest performance was turned in by issues rated CCC and below, which advanced 0.61% - roughly double the gains posted by the B and BB names. They also pointed out that while new-deal activity was low, with only one offering having priced as of last Thursday's close, they observed that "the forward calendar continued to build," standing at 11 upcoming deals potentially totaling $3 billion as of the close Thursday. On the demand side, the analysts noted that the AMG high-yield mutual funds flow number was a $128 million inflow, marking the third straight week in which more money came into the funds - a key barometer of overall junk market liquidity trends - than flowed from them.

With such favorable technical factors at play, the overall advance remains broad based, with 21 of the 23 industry sectors into which Banc of America divides its junk bond universe having positive returns in the most recent week, following the previous week's 22-1 positive breakdown.

Wireline telecoms strongest for week

Wireline telecommunications operators were the strongest performers in the most recent week, notching a 0.75% gain; in the previous week, wireline had been somewhere in the middle of the pack of positive finishers, and entertainment, with a 1.36% return, had led all comers.

Utilities were up 0.63% in the most recent week, second-strongest in the index. Non-ferrous metals and mining (up 0.63%), and chemicals and cable/DBS operators (both up 0.57%) rounded out the latest week's Top Five list of best performing sectors; in the week ended Sept. 2, non-ferrous metals and mining had one of the weakest returns of any group, 0.19% - weak enough to wind up on the Bottom Five list of that week's worst finishers, which with only one sector actually ending in the red, was top-heavy with sectors having smaller gains than most other sectors. On the other hand, the chemicals sector had been among the best gainers the week before, when it had been up 0.65%, making the Sept. 9 week the second in a row that the chemical makers have made the Top Five.

Technology firms weakest for week

On the downside, just two sectors were actually in the red, with technology names down 0.14%; the week before, the tech names had been in the middle of the pack, while the single worst performance was business services, which lost 0.04%.

Consumer non-durables companies, with a 0.09% loss, were the only other finishers in negative territory this past week. The rest of the Bottom Five was comprised of sectors merely having much smaller returns than their positive peers, including entertainment (up just 0.03%), lodging (up 0.06%) and healthcare (a 0.16% gain). In the previous week, entertainment had been the hottest ticket in the index, as noted, up 1.36%. Lodging had also checked in with a Top Five return the previous week, when it had been up 0.64%, while healthcare had been among the sickly Bottom Five, with a relatively anemic 0.29% return.

On a year-to-date basis, the steelmakers remain on top, running their cumulative gain to 9.92% from 9.40% the week before. Non-ferrous metals and mining companies, helped by their Top Five finish this past week, partly closed the gap against the steelers with a rise to 9.48%, well up from 8.80% the week before.

Other groups showing notable year-to-date strength include chemicals, helped by a second consecutive Top Five finish that increased their cumulative gain to 8.28% from 7.65%; consumer non-durables companies, although their small loss and Bottom Five finish cut their overall return to 7.96% from 8.08% the week before; industrials, (up to 7.44% from 7.05%); energy (7.34%, up from 6.95%) and consumer non-cyclicals, (7.28% up from 7.10%).

On the downside, the transportation sector - top-heavy with the volatile bonds of the troubled airline sector - remains sunk deep in the cellar, although its respectable 0.55% gain in the most recent week, which just barely missed putting it in the Top Five, trimmed its year-to-date loss to 12.05% from 12.51% the week before. Wireline telecom, helped by its index-best 0.75% gain, reduced its cumulative loss to 3.32% from 4.04% previously. Those are the only two industry sectors in the red year to date.

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