B of A High Yield Broad Market Index starts 2004 with strong 1.33% jump

By Paul Deckelman

New York, Jan. 12 - The Banc of America High Yield Broad Market Index kept the ball rolling after a stellar 2003 performance and started the first full trading week of 2004 off with a bang, returning a robust 1.33% in the week ended Thursday Jan. 8 - its 21st consecutive weekly gain. By definition, the first week's result is also the cumulative return for the year-to-date.

B of A did not officially publish its index results in the previous two weeks, which were each truncated by Thursday holidays sandwiched in between Wednesday and Friday half sessions, but in the week ended Wednesday Dec. 24 the index had risen 0.59% for the week and rose another 0.27% in the week ended Wednesday Dec. 31 2003. As of that day, the index's cumulative gain for all of 2003 was a stunning 28.88%, its peak for the year.

In the latest week, the index's spread over Treasuries continued to narrow, falling to 459 basis points, from 484 bps on Dec. 31, while the yield-to-worst narrowed to 7.47%, down from 7.76% on Dec. 31. Both the Dec. 31 levels were lows for 2003.

B of A's High Yield Large Cap Index showed a similar pattern of strong movement. In the week ended Thursday, it returned 1.63%, its 11th consecutive weekly gain and also its cumulative gain for 2004 so far.

The High Yield Large Cap Index had risen 0.74% in the week ended Dec. 24 and 0.31% in the week ended Dec. 31, and closed out 2003 with a 32.62% cumulative return.

In the latest week, the High Yield Large Cap Index's spread over Treasuries fell to 421 basis points from 452 bps as of Dec. 31, and its yield-to-worst narrowed to7.22% from 7.56% on Dec. 31; both Dec. 31 figures were lows for 2003.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,633 issues of $100 million or more, having a total market value of almost $508 billion, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 566 issues of $300 million or more having a total market value of over $307 billion. B of A sees both as reliable proxies for the $750 billion high yield universe.

Banc of America Securities analysts noted that the high yield market continues to show a "strong tone," with a continued active primary segment, with more than $1.17 billion of new debt having priced in the week through last Thursday. They also declared that "the demand for the asset class remained healthy" as well, with high yield mutual funds reporting an inflow of $506 million in the week ended last Wednesday, as measured by AMG Data Services, whose weekly fund-flow statistics are seen by market participants as a key barometer of overall junk market liquidity trends.

Lowest credits outperform

On a credit basis, lowest of the three credit tiers into which B of A divides its index (issues rated B- and below, accounting for 37.50% of the index), showed an index-best 2.00% gain, followed by middle credit tier, consisting of those issues rated BB-, B+ and B and making up 46.91% of the index, which returned 1.03%. The top credit tier - those credits rated BB and BB+ and comprising 15.58% of the index - brought up the rear, with a 0.69% return for the week.

The new year begins with B of A having made some changes in the way it calculates returns for individual industry subsectors. While the index in 2003 had 27 such groupings, it begins 2004 with 23. Satellite services, international cable and North American cable have been consolidated into one new grouping, cable/DBS, broadening the grouping to include direct broadcast service satellite companies such as EchoStar DBS and DirecTV as well as the more traditional cable players such as Cablevision and Charter Communications.

The international and domestic wireline subsectors have been merged into one, simply now called wireline, while the old international wireless grouping has been folded into the PCS/cellular subsector.

Banc of America Securities indicated that for several of the subsectors that were eliminated the number of outstanding issues which it tracked had been reduced to a relative handful due to maturity or company repurchases so it made more sense to roll those relatively small subsectors into related larger subsectors.

As could be expected during a week with such a strong overall return, all of the 23 industry groups into which B of A now divides its high yield universe posted gains for the week; such a clean sweep had occurred a number of times in recent weeks toward the end of 2003, in keeping with the broad-based nature of the overall index advance.

The newly formulated cable/DBS subsector celebrated its debut by posting an index-leading 2.52% return on the week, while technology names were up 2.38%.

The new wireline subsector (up 2.17%), the expanded PCS/cellular grouping (1.99% better) and utilities (up 1.90%) rounded out the Top Five list of the best-performing industry subsectors for the first week of the new year.

On the downside, as has been the case in several recent weeks, there was no actual downside - only subsectors reporting smaller gains than their peers.

The steel subsector - which in December had notched several straight weeks in which it was far and away the strongest industry grouping in the index, after having spent most of the year as the only sector in the red, seemed to revert to form once the calendar page was turned, posting an index-weakest 0.14% return.

Non-ferrous metals and mining (up. 0.44%), consumer non-durables (0.66% better), energy (up 0.75%) and industrials (up 0.76%) rounded out the Bottom Five list of the weakest performers for the most recent week.

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