Bear Stearns High Yield Index up 0.42% on week, year-to-date return climbs to 6.84%

By Paul A. Harris

St. Louis, Oct. 15 - The Bear Stearns High Yield Index posted its second consecutive positive weekly return, up 0.42% for the week ending Oct. 14. This follows a 0.37% return for the week ending Oct. 7.

With positive figures in 16 of the past 18 weeks, the year-to-date return climbed to 6.84%.

"We're continuing to grind higher," said Bear Stearns & Co. high-yield analyst Mike Taylor. "We continue to think we're going to get to that high single digit [yearly return] target that we forecast at the beginning of the year.

"At this point it's hard to see the catalyst that is going to slow it down."

Taylor added that a notable quest for yield that is currently causing the bid to climb in high yield is being leavened somewhat by the recent rally in Treasuries.

"The 10-year has almost pushed down through the 4% level," he said. "That means that high-yield bonds, which otherwise might have looked awfully rich, are relatively more attractive.

"Treasuries and interest rates are going to be more of an influence on the market than equity performance," he added. "We have been seeing a decoupling of high yield with the stock market."

Ten of the 11 industry sectors making up the Bear Stearns index showed positive returns in the latest week.

Transportation top gainer

The biggest gainer among the sectors for the week was transportation, which returned 3.85%. The sector ended the week with a negative 12.34% year-to-date return.

Leading the transportation sector's climb was the airlines sub-sector, with a 9.60% weekly return, leaving it negative 31.80% year to date.

Utilities down

The single losing sector was the utility sector, posting a negative 0.17% return on the week, leaving it with a 7.90% year-to-date return.

In that sector, the independent power producer sub-sector posted a negative 1.25% weekly return, leaving it 5.12% in the black for the year.

Taylor noted that the sub-sector was impacted by the week's headline-maker, Calpine Corp. Earlier in the week Standard & Poor's assigned its CCC+ rating to the San Jose, Calif.-power producer's $736 million of unsecured convertible notes due 2014, as well as to the company's unsecured debt, two notches below its corporate credit rating. S&P said the outlook for the debt ratings was negative, reflecting Calpine's weak financial ratios.

Calpine impacts sector

"Calpine contributed specifically not only to the lower returns for the triple-Cs, this week, but for the utility sector also," Taylor commented.

The Bear Stearns High Yield Index's top sector year to date remains basic materials at 10.40%. It posted a 0.49% return on the week.

The strongest year-to-date sub-sector remains textiles and apparel at 24.63%, having gained 0.67% on the week.

The index's yield to worst ended the week at 7.38%, nine basis points tighter than the previous week's 7.47%. The yield-to-worst spread was 415 basis points.

The index ended the week to Oct. 14 with a market value that had increased to $532.84 billion from $523.93 billion the previous week. Over the course of the week the number of issues increased by 18 to 1,696 from 1,678.

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