B of A High Yield Broad Market Index up 0.64%, year-to-date gain increases to 19.92%

By Paul Deckelman

New York, Sept. 16 - The Banc of America High Yield Broad Market Index rose 0.64% in the week ended Thursday Sept. 11, its fourth straight weekly gain, bringing its cumulative 2003 return to its highest point for the year so far at 19.92%.

In the previous week, ended Sept. 4, the index had risen 1.18%, for a year-to-date return of 19.16%.

In the latest week, the spread over Treasuries widened out to 595 basis points, up from 587 bps the previous week, owing to the continued decline in Treasury yields, while the index's yield-to-worst dropped to its lowest level of the year, 9.02% versus the previous week's 9.15%.

B of A's High Yield Large Cap Index also continued to push upward in the latest week, with a return of 0.64% - matching the HY Broad Market gauge, versus the previous week's 1.31%. The year-to-date return fattened in the latest week to 22.57% from 21.79%, the previous week. In the latest week, the spread over Treasuries was 560 basis points, widening out from 552 bps previously, but the yield-to-worst was 8.79%, versus the previous week's 8.93%.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,572 issues of $100 million or more having a total market value of nearly $457 billion, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 523 issues of $300 million or more having a total market value of more than $269 billion. B of A sees both as reliable proxies for the approximately $700 billion high yield universe.

B of A analysts noted that the high-yield secondary market "continues to strengthen following losses incurred from mid-July to mid-August," even though junk bond mutual fund flows - a key barometer of overall high-yield market liquidity trends - experienced a $486 billion outflow in the week, after two weeks of inflows totaling some $4.4 billion. The analysts also noted that new-issuance "made a comeback after a three-week hiatus," with $2.6 billion of new debt having priced so far this month.

On a credit basis, the highest of the three credit tiers into which B of A divides its index - representing credits rated BB and BB+ and comprising 15.74% of the index - had the best return in the most recent week, up 0.91%. It was followed by the middle credit tier (those issues rated BB-, B+ and B, making up 48.09% of the index), which returned 0.59% - in a virtual dead heat with the bottom credit tier, of issues rated B- and below (36.17% of the index), which returned 0.58%.

Continuing a recent trend of across the board strength, the analysts further noted that 25 of the 27 industry sectors into which Banc of America Securities divides its high yield universe were in positive territory, with just two sectors posting negative returns for the latest week.

The best- performing sector in the latest week was the steel group, which returned 1.81%, on strength in AK Steel Corp. and United States Steel LLC. The B of A analysts noted that AK's bonds, have continued to firm since the company's announcement last month that it had completed the acquisition of Central Tubing Facility, a transaction it expects to be immediately accretive. In the latest week, they were up an average of between three and four points on the week, with the 7¾% notes due 2012 up three points to 80 bid. U.S. Steel's 10¾% notes due 2008 and its 9¾% notes due 2010 gained one-and-three-quarter and one-and-a-half points respectively to end at 108.75 and 104.5.

The second-best performer on the week was international cable, up 1.79% on strength in Ono Finance's 13% notes due 2009 and its 14% notes due 2011, which both firmed nearly five points to close at 92.75.

Finance (up 1.66% as Finova Group's 7½% notes due 2009 rose more than three point to close at 90), PCS/cellular operators (1.29% better) and paper and packaging (up 1.17%) rounded out the Top Five list of the week's best-performing sectors.

On the downside, unlike the previous week, when none of the sectors had negative returns, two of the industry groupings finished in the red in the latest week. Chemicals lost 0.25% as Lyondell Chemical Co.'s bonds were down two-and-a-half points on average over the week, with its 9 7/8% notes due 2007 down that much to end at 97.5. Equistar Chemical notes were down between one and two points, with the 10 1/8% notes due 2008 off a point to end at 99.75.

Also in the red was transportation - the previous week's best performer - which this time around eased 0.09%, as Delta Air Lines' bonds were down as much as one-and-a-half points, with its 8.3% notes due 2029 losing a point to end at 66.5. Northwest Airlines were down a point-and-a-quarter on average, with its 9 7/8% notes due 2007 down a point to end at 77.5.

Rounding out the Bottom Five list of the weakest performers were three sectors which merely turned in smaller returns than all of the other industry groupings - utilities (up 0.09%), gaming (up 0.17%) and international wireless operators (up 0.22%).

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