B of A High Yield Broad Market Index up 0.03%, year-to-date return inches up to 1.19%

By Paul Deckelman

New York, March 14 - The Banc of America Securities High Yield Broad Market Index gained 0.03% in the week ended March 10, essentially balancing the previous week's loss of 0.07%, which had broken a string of five consecutive weekly advances reaching back to mid-January. The year-to-date return inched up to 1.19%.

The index's spread over Treasuries narrowed to 300 basis points from 306 basis points the week before, although its yield to worst widened to 7.02% from 6.98% the week before.

The more narrowly focused High Yield Large Cap Index was flat at 0.00%, showing neither a gain nor a loss in the week ended March 10, with its year-to-date showing holding steady at 1.02%. In the week ended March 3, the index had declined 0.14%.

Following the pattern seen in the HY Broad Market Index, HY Large Cap's spread over Treasuries in the most recent week fell to 285 basis points from 290 basis points, although its yield to worst increased to 6.90% from 6.85% previously.

In the latest week, the more inclusive HY Broad Market Index tracked 1,697 issues of $100 million or more, up from 1,695 the week before, while the overall market value of the issues increased to $550.7 billion from $550.3 billion the previous week.

The HY Large Cap Index, representing the most liquid portion of the high-yield world, tracked 617 issues of $300 million or more, up from 613 the week before, while total market value increased to $339.9 billion from $338.6 billion. B of A said it sees both as reliable proxies for the $750 billion high-yield universe.

Lowest tier outperforms

The lowest of the three credit tiers into which B of A divides its index - those issues rated B- and below, accounting for 36.93% of the index - had the best return and the only positive showing, gaining 0.24%. This was followed by the middle credit tier - those issues rated BB-, B+ and B, making up 45.15% of the index - which was off 0.06%. Bringing up the rear was the top credit tier - those issues rated BB+ and BB, comprising 17.92% of the index - which fell 0.20%.

It marked the fourth consecutive week in which the top tier was on the bottom of the order. In the week ended March 3, the middle tier returned 0.01%, followed by the bottom tier, which lost 0.11%, and finally the top tier, with an 0.19% loss. The three tiers also finished in that same order in the previous two weeks.

B of A analysts noted that the new-issue market had been "fairly active, with most activity occurring during the latter half of the week," with $2.6 billion of new supply from nine issuers having priced through March 10 versus the $2.1 billion total from seven issuers seen through March 3.

They also pointed out that investors continued to pull cash out of high-yield mutual funds, which showed an outflow of $140.7 million in the week ended March 9, the fourth straight week of outflows, which brought the year-to-date total outflow from these weekly-reporting funds to $1.54 billion.

Fourteen out of the 23 industry sectors into which B of A divides its high-yield universe had positive returns this past week against nine decliners, a reversal of the previous week, when 11 sectors had been in the black and 12 in the red. In most of the previous weeks, either all or almost all of the industry sectors had positive returns, restoring the pattern seen during the index's surge in the latter part of 2004.

Cable/DBS tops for week

Cable/DBS operators had the best return in the most recent week at 0.63%, bouncing back from the 0.65% loss seen in the week ended March 3. The cablers and their satellite rivals have now been the best performers in the index in two of the last three weeks and have been among the Top Five strongest finishers in three of the last four weeks. Utilities was the best-performing sector in the March 3 week, up 0.51%.

Entertainment (up 0.46%) was the second-strongest sector in the most recent week, with publishing (up 0.30%), healthcare (up 0.20%) and finance (up 0.19%) rounding out the latest week's Top Five list. Healthcare was the worst performing sector in the week ended March 3, sliding 0.90%.

That week's slide was presumably connected with the sudden drop in Elan Corp.'s bonds after the pharmaceuticals maker announced that it was pulling its joint-venture drug Tysabri off the market after one patient taking it died of a rare condition and a second also came down with symptoms of the same potentially fatal ailment. The Elan bonds appeared to have bounced back somewhat from their previously oversold condition in the most recent week, putting the healthcare sector back among the better finishers.

Transportation worst for week

On the downside, transportation was the worst performing sector, falling 0.57%. The sector was presumably dragged down by the slide in Delta Air Lines Inc. bonds and other names in the problem-plagued airline grouping after Delta warned in its annual filing with the Securities and Exchange Commission that it will post a substantial loss in 2005, will have trouble meeting its financing needs and might even have to file for bankruptcy if it cannot access the capital markets or if the assumptions of its ambitious turnaround plan don't pan out.

The transportation sector has now been among the Bottom Five worst performing sectors for four straight weeks and has been the absolute worst in the group in three weeks out of the last four.

Steelmakers were down 0.42% in the latest week, the second-worst sector showing. Lodging (down 0.39%), gaming (down 0.35%) and consumer non-durables companies (down 0.32%) rounded out the latest week's Bottom Five list.

Transportation still worst in 2005

On a year-to-date basis, transportation's continued presence in the Bottom Five and its index-worst performance in the most recent week widened its cumulative loss to 4.35% from 3.80% the week before, digging it in deeper as clearly the worst performer of 2005 so far.

Consumer durables' year-to-date loss widened to 0.38% from a 0.12% loss the week before, making it the only sector other than transportation to be in the red on a cumulative basis so far this year. Healthcare, which showed a 2005 loss of 0.06% the previous week, swung back into the black at 0.13% on the strength of this past week's Top Five placement.

Finance tops for year

On the upside, Top Five finisher finance increased its year-to-date return to 3.55% from the previous week's 3.35% to take over the top spot from the PCS/cellular operators, which had a loss on the week and saw the 2005 total fall to 3.15% from 3.41% the week before.

Also showing some year-to-date strength were business services, although its return eased slightly to 2.17% from 2.18% the week before, non-ferrous metals and mining, which moved up to 2.05% from an even 2%.

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