B of A High Yield Large-Cap Index off 0.51%; year-to-date gain eases to 2.57%

By Paul Deckelman

New York, Feb. 18 - The Banc of America High Yield Large Cap Index fell 0.51% in the week ended last Thursday (Feb. 13) - the fourth week in a row in which the market gauge was on the downside. In the previous week (ended Feb. 6), the index had retreated 0.21%. The downturns have partially unraveled the gains of five straight weeks of advances, stretching back into December.

The year-to-date return likewise declined in the latest week to 2.57% from 3.09% the week before. The cumulative return had been given a big boost by the 3.43% gain seen in the first full trading week of the year (ended Jan. 9), but has been steadily eroding in recent weeks.

In the latest week, the index's spread over comparable Treasury issues widened out to 932 basis points from 912 the week before, while its yield-to-worst rose to 12.37% from 12.22%.

B of A's somewhat broader and more representative Banc of America High Yield Broad Market Index was also lower in the most recent week, dipping 0.24% versus its 0.07% loss in the week ended Jan. 30. The HY Broad Market Index's year-to-date return eased to 2.40%, down from 2.65% the prior week. Its spread over Treasuries widened out to 937 basis points from 916 the week before, and its yield-to-worst was 12.25%, up from 12.11% seen the week before.

(The High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracks approximately 400 issues of $300 million or more, having a total market value of about $180 billion. The High Yield Broad Market Index tracks approximately 1,400 issues of $100 million or more, having a total market value of about $340 billion. B of A sees both as reliable proxies for the approximately $600 billion high yield universe.)

B of A analysts noted that new issuance "was the credit markets' only bright spot last week, as the lingering uncertainty about the timing of a potential war with Iraq and the heightened risk of global terrorism - highlighted in a warning by the US Homeland Security Department - marred the [high grade and high yield] secondary markets' performance."

That performance "became choppier later in the week, as factors generating equity market losses reversed early week positive momentum."

With the tone in the high-yield secondary market growing heavier as the week drew to a close, declining sectors outnumbered the advancers 15-to-12.

Chief among them was the lodging sector, following the transportation grouping's run the three previous weeks as the worst performer. Lodging was off 2.21% in the most recent week, and is down 4.7% year to date, as lodging companies have been revising guidance downward for first quarter and full-year 2003. FelCor Lodging Trust Inc.'s bonds lost up to 6½ points, with its 9½% notes due 2008 falling five points to close at 90, while Meristar Hospitality Corp.'s bonds lost up to six points during the week, with its 9 1/8% notes due 2011 trading down five points to end at 75.

Utilities, down 2.14%, were the second-worst performing sector, "as investor concern about the financial health of the sector was renewed," the B of A analysts declared. Weakness in El Paso Corp. put pressure on the sector, as the company's chief executive officer announced his plans to leave and Moody's Investors Service slashed its senior unsecured debt rating five notches to Caa1. That, in turn, helped push CMS Energy Corp.'s bonds down six to nine points as its 9 7/8% notes due 2007 lost six points to end at 82. Also lower were the bonds of energy generators AES Corp. and Calpine Corp.

Transportation issues, for a change, weren't the worst performers - but they weren't far behind, dropping 1.52%, chiefly on weakness in the bonds of Delta Air Lines Inc. and Northwest Airlines Corp. Satellite services (down 0.90%) and gaming issues (off 0.81%) rounded out the Bottom Five list of the worst-performing sectors.

On the upside, finance issues were 1.37% higher, pulled up by the bonds of Fairfax Financial Holdings Ltd., which rose anywhere from six to 10 points - its 7 3/8% notes due 2006 advanced 8½ points to close at 81.5 - after the company reported fourth-quarter results.

International cable was the second-best sector, driven by continued strength in British Sky Broadcasting Group plc, whose 8.20% notes due 2009 traded up more than a point to end at around 111.5, aided by continued reaction to the previous week's news that Standard & Poor's had raised the company's outlook.

Consumer durables (up 0.66%, mostly on strength of Goodyear Tire & Rubber Co. debt), North American cable companies (up 0.37%) and energy (0.33% better) rounded out the Top Five list of the best-performing sectors in the most recent week.

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