Banc of America High Yield Broad Market Index off 1.06%; 2004 gain cut to 0.53%

By Paul Deckelman

New York, Feb. 9 - The Banc of America High Yield Broad Market Index posted its second consecutive weekly loss in the week ended Feb. 5, falling 1.06%; this was on top of the 0.87% retreat seen in the previous week ended Jan. 29, which had ended an astounding 23-week winning streak dating back to mid-August.

The latest week's loss brought the index's 2004 return down to 0.53%, its low for 2004 so far, from 1.61% the previous week. Over the past two weeks, the index has moved down from its 2004 high of 2.50%, seen in the week ended Jan. 22. It had gained a stunning 28.88% in 2003, and up until the past two weeks, its upward momentum had seemed to be continuing unabated over the first four weeks of the year.

In the latest week, the High Yield Broad Market Index's spread over Treasuries widened to 498 basis points from 470 basis points the previous week, while its yield to worst also increased to 7.90% from the previous week's 7.58%. The latest week's figures are both new highs for the year.

Banc of America's High Yield Large Cap Index showed a similar, though more pronounced pattern; in the week ended Thursday, it lost 1.38%, on top of the 1.34% loss the previous week, which had ended a 13-week streak of advances going back to late October.

The cumulative return for 2004 dipped into the red for the first time this year, down 0.06% from a 1.34% gain the previous week. The year's high-water mark had been 2.71% in the week ended Jan. 22. The index had posted a stellar 32.62% cumulative return in 2003.

Large cap spreads widen

Large Cap's spread over Treasuries - like that of the High Yield Broad Market Index - widened to 482 basis points from 446 basis points the week before, while its yield to worst increased to 7.89% from the previous week's 7.48%, with the latest week's figures both new highs for the year.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,645 issues of $100 million or more, having a total market value of more than $503 billion, down from $509 billion the week before, while the High Yield Large Cap Index, representing the most liquid portion of the high-yield world, tracked 577 issues of $300 million or more having a total market value of about $302 billion, off from $307 billion previously. Banc of America sees both as reliable proxies for the $750 billion high-yield universe.

Banc of America Securities analysts noted that, in line with the junk market's negative returns, high-yield mutual funds reported a massive outflow of nearly $1.6 billion 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. It was the first such outflow after 13 consecutive weeks in which more money came into the junk funds than left them.

On a credit basis, the lowest of the three credit tiers into which Banc of America divides its index - issues rated B- and below, accounting for 38.29% of the index - posted the largest loss, 1.19%. This was followed by the middle credit tier, consisting of those issues rated BB-, B+ and B and making up 46.50% of the index, which lost 1.05%. The upper credit tier, consisting of those credits rated BB and BB+ and comprising 15.21% of the index, had the smallest loss of the three, 0.70%.

The order of finish was the same the week before, when the lowest tier also had the worst loss (1.12%), followed by the middle tier (0.86%) and the upper tier (0.30%).

Most subsectors decline

For the second consecutive week, decliners overwhelmingly outnumber advancers among the 23 industry groups into which Banc of America divides its high-yield universe, although their domination was much more pronounced in the latest week - 22 subsectors showed losses, against only one in positive territory, non-ferrous metals and mining. The week before, there had been 18 declining sectors and five advancers. The two-week trend of broad-based losses is a sharp reversal of the pattern seen during the long period of weekly advances, when broad-based strength often resulted in weeks in which all or nearly all of the subsectors registered gains.

In the week ended Thursday, the wireline telecommunications subsector was the worst performer - the second straight week in which it has held that unwanted honor, posting a 2.97% loss, nearly twice that suffered by the next-worst sector. In the previous week, wireline had also lost an index-worst 2.30%.

Transportation (down 1.69%) was the second-worst grouping in the latest week, followed closely by utilities (down 1.68%), which had been the second-worst performer the previous week, when they lost 2.17%. Gaming (down 1.39%) and lodging (a 1.35% loss) rounded out the Bottom Five list of the week's worst finishing subsectors; the week before, gaming had been among the few sectors showing a hot hand, with a 0.26% advance.

For a second consecutive week, there wasn't much of an upside, and non-ferrous metals and mining was again on top - in fact, the lone positive finisher this week in a sea of negatives - with a 0.44% return; the week before, the grouping had also been the best finisher, with a 0.67% return. Non-ferrous metals and mining has now been on the Top Five list of the best-performing subsectors for four straight weeks, and has led it in three out of those four weeks.

With non-ferrous metals and mining the only subsector showing any strength at all this latest week, the other Top Five names were merely those groups which had smaller losses than everybody else, starting with finance, down 0.06%; the week before, finance had also been in second place, with a 0.55% positive return.

Consumer non-durables (down 0.14%), PCS/cellular operators (down 0.42%) and healthcare (off 0.47%) rounded out the latest week's Top Five. In the previous week, PCS/cellular and healthcare had been among that week's worst finishers, with losses of 1.74% and 1.82%, respectively.

Metals, mining strongest

On a year-to-date basis, the non-ferrous metals and mining group solidified its hold on the top spot on the strength of its second straight week and third week out of four as best-performing sector; its cumulative return fattened to 4.38% from 3.92% the previous week.

All other sectors saw their year-to-date returns decline in the most recent week, although the decline was smallest in finance, in second place each of the past two weeks and second as well in year-to-date return, at 3.32%, distantly trailed by industrials (1.74%) and technology names (1.66%).

The unenviable distinction of having the year's worst cumulative return so far now falls to wireline telecom, which is down 2.03% for the year, knocked down by two straight index-worst weekly losses of more than 2%. The week before, it had been among the worst, with a 0.97% deficit, but was not the single worst grouping, which had been healthcare. The latter group, one of the smaller losers this week, went from an index-weakest 0.32% gain previously to a 0.15% loss.

Other particularly weak subsectors year to date include utilities and publishing (both down 0.55%), followed by paper and packaging (down 0.29%) and lodging (off 0.27%).

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