B of A High Yield Broad Market Index up 0.30%, year-to-date return grows to 0.58%

By Paul Deckelman

New York, July 5 - The Banc of America Securities High Yield Broad Market Index posted a gain for the third straight week and the fifth week out of the last six, rising 0.30% in the week ended Thursday June 30, on top of the 0.42% advance seen in the previous week (ended June 23). That increased the year-to-date return for the index - which got back in the black in the June 23 week after several months in negative territory - to 0.58% from 0.28% the week before. The upturn over the past few weeks seems to be a reversal - still a bit tentative - from that prolonged downturn which ran from early in the year until late May and which at its worst, had pushed the year-to-date loss up to 3.31%, in mid-May.

The index's spread over Treasuries, which in the previous week had widened back out to 407 basis points from 402 bps previously, edged downward to 401 bps in the latest week. Its yield-to-worst - which had previously declined to 7.83% from 7.91% - continued to ease, to 7.76% in the week ended Thursday.

The more narrowly focused High Yield Large Cap Index, which essentially mirrors the patterns seen in the HY Broad Market Index, also notched its third straight advance and fifth in the last six weeks, rising 0.32%, on top of the prior week's 0.42% gain. Here too, the year-to-date return - which had just managed to swing back into the black in the week ended June 23 after several months in the red, added to its gains, rising to 0.48% from 0.16% previously. HY Large Cap's spread over Treasuries, which in that June 23 week had moved out to 385 basis points from 380 bps, went back down in the most recent week, to 379 bps, while its yield-to-worst declined to 7.56% from 7.63% previously.

In the latest week, the more inclusive HY Broad Market Index tracked 1,701 issues of $100 million or more, up solidly from 1,683 the week before, and the overall value of the issues shot up to $545.8 billion from $532.3 billion the previous week.

B of A sees the HY Broad Market Index and the HY Large Cap Index - which tracks over 600 issues of $300 million or more, with a total market value estimated in the $330 billion range - as reliable proxies for the $750 billion high-yield universe.

Best credits show biggest gains

On a credit-quality basis, the topmost of the three credit tiers into which B of A divides its index - those issues rated BB+ and BB, comprising 20.79% of the index - had the best return, gaining 0.19%, followed by the bottom tier (those issues rated B- and below, accounting for 34.95% of the index), which was up 0.10%, just barely ahead of the middle tier - those issues rated BB-, B+ and B, making up 44.25% of the index-which returned 0.09%.

It was the second straight week in which the tiers finished in that same order; in the week ended June 23, the topmost tier rose 0.60%, followed by the bottom tier, which was up 0.41%, while the middle tier brought up the rear with a 0.37% rise.

Those two weeks broke the pattern which had been seen over the previous several weeks, in which the bottom tier had led the way in two straight weeks, followed by the middle tier and then by the upper tier; this in turn was part of a four-week stretch in which the formerly lowly bottom tier dominated, no matter who else was next. The past two weeks also represented a return to the pattern seen before that four-week span - when the top tier had led the way in five weeks out of the prior six.

Bank of America Securities did not formally publish its indexes, due to the abbreviated session Friday (July 1) ahead of the Independence Day holiday break, which also saw the financial markets closed on Monday, July 4, and thus offered no analysts' assessments of the latest week's performance, although it did make its data available to Prospect News.

Twenty-one of the 23 industry sectors into which B of A divides its high-yield universe had positive returns in the most recent week and just two were in the red, essentially unchanged from the previous week's 20-3 positive split. Over the past six weeks, a majority of sectors have been in the black, including two weeks in which all were positive. Before that, all or almost all, of the sectors, were showing losses in most weeks, dating back into March.

Technology top performer

In the week ended Thursday, technology was the best-performing sector, returning 0.62%. It took over the top spot from transportation, which had showed a 0.83% gain in the week ended June 23.

Gaming (up 0.58%), utilities (up 0.53%) non-ferrous metals and mining (up 0.48%) and advertising-dependent media (up 0.47%) rounded out the Top Five list of the best-performing sectors in the latest week. It was the second week in a row in the Top Five for non-ferrous metals and mining, which had also posted a 0.80% gain in the June 23 week, and the group has now been a Top Fiver in three weeks out of the past four. Ad-dependent media, on the other hand, had made the Bottom Five list of the week's worst finishers in the previous week, when it had just a paltry 0.08% gain, although it has still been in the Top Five in two weeks out of the last three, along with utilities.

Transportation has biggest loss

On the downside, transportation lost 0.25% in going from first to worst, after having been the index leader in the week ended June 23, as noted. It took over the role of cellar-dweller from steel, which had been the worst performer in the previous week with a 0.91% loss. Transportation has now been the worst performer in two weeks out of the last three, even through it was also the best performer in three weeks of the last five, showing the extreme volatility of the airline-heavy group.

Business services (down 0.21%) was the only other sector to actually post a negative return this past week. The Bottom Five was filled out by sectors merely having much smaller returns than everyone else - entertainment (up 0.02%), industrials (up 0.09%) and steel and healthcare (each up 0.17%). For business services, its weak finish was a reversal from the week ended June 23, when it was in the Top Five with a return of 0.72%. Steel, as noted, was the worst finisher the previous week, and has held that position in three weeks out of the last five, while belonging to the Bottom Five in four weeks out of the last six. Healthcare has been in the Bottom Five in two weeks out of the last three.

On a year-to-date basis, the transportation sector's index-worst showing for the week widened its cumulative loss slightly to 9.87% from 9.65% the week before. However, consumer durables' deficit narrowed to 4.36% from 4.63% previously, while steel's year-to-date deficit actually declined to 4.23% from 4.40%, despite the steelers' presence in the Bottom Five.

Also showing a notable negative return for the year so far is paper and packaging, although its deficit eased this week to 1.31% from 1.51%, and cable/DBS, whose loss shrank to 1.30% from 1.47%. Bottom Fiver entertainment, whose loss edged downward to 0.43% from 0.45%, is the only other sector in the red for the year so far.

On the upside, PCS/cellular remained the leader, as its return improved to 5.46% from 5.20% the week before. Finance was second, improving to 4.26% from 4.04%. Publishing rose to 2.50% from 2.05%, wireline telecommunications improved to 2.32% from 1.85%, but Bottom Fiver business services fell to 2.15% from 2.36%.

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