B of A High Yield Large-Cap Index up 1.38%, year-to-date gain 19.69%

By Paul Deckelman

New York, June 17 - The Banc of America High Yield Large Cap Index scored a strong gain for a second consecutive week, rising 1.38% in the week ended Thursday, on top of a 1.26% return in the week ended the previous Thursday, June 5. The index's year-to-date return swelled to 19.69% from 18.06% the week before.

The index's spread over Treasuries dipped below the psychologically potent 700 basis-point mark, dropping to 692 bps from the previous week's 705, in line with the overall junk bond market's continued spread tightening. Its yield to worst likewise narrowed to 9.09% from 9.40% previously.

The more inclusive Banc of America High Yield Broad Market Index was also sharply improved for a second straight week, returning 1.21% to raise its cumulative return for the year so far to 16.91%. The week before, the index had risen 1.01% for the week, for a 15.51% cumulative return. Also in the latest week, the spread narrowed to 729 basis points over Treasuries from 738 the week before, while the yield to worst fell from 9.62% to 9.35% - the lowest level since the index's inception in January 1999.

(The High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracks some 485 issues of $300 million or more having a total market value of around $247 billion. The High Yield Broad Market Index tracks almost 1550 issues of $100 million or more, having a total market value of over $436 billion. B of A sees both as reliable proxies for the approximately $700 billion high yield universe.)

The sharp gains posted in each of the past two weeks by both the HY Large Cap Index and the HY Broad Market Index coincides with the return of sizable high yield mutual fund inflows, considered a significant barometer of overall junk market liquidity trends. In the week ended this past Wednesday, about $1.33 billion more came into the funds than left them, on the heels of a $1.45 billion inflow the previous week (the junk funds previously had enjoyed a 12-week stretch, going back to late February, in which large inflows - many over $1 billion - had been seen week after week, punctuated by two weeks in late May in which back-to-back outflows were seen; the performance of the B of A indexes was affected accordingly).

In the latest week, 26 out of the 27 industry groups into which Banc of America divides its high yield universe turned in positive results, with just one decline - and that one was small enough to be almost negligible. Looking at the three credit tiers into which the HY Broad Market Index is divided, the higher-yielding Lower Credit Tier (those issues rated B- and below) was the strongest performer, returning 1.47%. The Middle Credit Tier ( including issues rated B, B+ and BB- ) showed a 1.11% return, while the Upper Credit Tier (issues rated BB and BB+) returned 0.85%.

For a second consecutive week, transportation was the best performing sector, up 2.47% (on top of the index-best 3.17% return the week before) as airline bonds continued to rally; Delta Air Lines' 7.7% notes due 2005 were up three points to 89.5, while Northwest Airlines' 9 7/8% notes due 2007 were also up a trey at 83.5.

International cable operators returned 1.98%, second-best in the index, as Ono Finance plc's 13% notes due 2009 and its 14% notes due 2011 both seen five points higher, at 67 bid.

Lodging (up 1.76% on gains across the sector by names including Meristar Hospitality Corp., Host Marriott Corp. and FelCor Lodging Trust Inc.), utilities (1.74% better) and domestic wireline telecommunications companies (up 1.57%) rounded out the Top Five list of best-performing sectors in the latest week.

On the downside, only one sector actually finished in the red this past week, and even that was just barely over the line, as non-ferrous metals and mining names eased 0.03% as the already distressed notes of International Wire Group again came under pressure, with its 11¾% notes due 2005 losing 4½ points to end around 61.5.

Of the other four names on the Bottom Five list of weakest performing sectors, all were up on the week - only just not as much as all of the other sectors. Technology firmed 0.58%, with notes of Nortel Networks Corp. up about three-quarters of a point.

Consumer non-cyclical companies (up 0.66% as deathcare service provider Service Corp. International's bonds rose three-quarters of a point while Aurora Foods Inc.'s bonds fell three points), entertainment (up 0.67%) and consumer non-durables companies (up 0.75%) rounded out the Bottom Five in the latest week.

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