B of A High Yield Broad Market Index down 0.22%; 2004 gain cut to 1.10%

By Paul Deckelman

New York, March 1- The Banc of America Securities High Yield Broad Market Index continued its recent zig-zag pattern, easing 0.22% in the week ended last Thursday, Feb. 26. The week before, ended Feb. 19, it had inched up 0.03%. Ever since the week ended Jan. 29, when the index had posted its first weekly loss since the middle of last August, its performance had been choppy - two weeks down, two weeks back up, and now another down week.

The latest week's loss pushed the index's year-to-date return down to 1.10% from 1.33% the week before.

In the week ended Thursday, the index posted a spread over Treasuries of 498 basis points, having widened out from 492 bps the week before; the new spread matches that measure's high for the year, first set back in the week ended Feb. 5. Its yield-to-worst likewise widened out to 7.76% from 7.70% the week before.

B of A's High Yield Large Cap Index continued to show a similar, though more pronounced pattern; in the week ended Thursday, it lost 0.40%, its second consecutive loss after the previous week's 0.08% decline. The cumulative return for 2004 narrowed to 0.56% from 0.96% the week before.

Large Cap's spread over Treasuries - like that of the HY Broad Market Index - widened out in the week ended Thursday, to 482 basis points - matching the year's high, set during the week ended Feb. 5 - from 470 bps in the week ended Feb. 19. Large Cap's yield-to-worst also ballooned to 7.73% from 7.62% the week before.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,654 issues of $100 million or more, having a total market value of over $506 billion, about the same as 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 $301 billion, also in line with the previous week. B of A sees both as reliable proxies for the $750 billion high yield universe.

On a credit basis, the highest of the three credit tiers into which B of A divides its index - those credits rated BB and BB+ and comprising 14.07% of the index - was the only one in the black, and just barely at that, up 0.08%. The middle tier ( consisting of those issues rated BB-, B+ and B and making up 50.25% of the index) lost 0.20%, with the lowest credit tier - issues rated B- and below, accounting for 35.68% of the index - brought up the rears, with a 0.90% loss. It was the same order of finish seen the week before, when the upper tier (up 0.29%) and the middle tier (up 0.16%) showed positive returns, while the lowest tier lost 0.24%.

Even with the loss for the week, however, B of A analysts indicated that things were not as bad as they could have been; they said that after the downturn triggered by a slew of negative credit news, such as El Paso Corp.'s reserve writedown, and lower-than-expected fourth quarter results for names such as Qwest Communications International Inc., Charter Communications Inc. and Dobson Communications Corp. "the high yield market tone improved markedly on Wednesday (Feb. 25), as many of the credits rebounded from their lows.

The analysts also opined that "the declining volatilities in interest rates and in the equities market also lent support to high yield."

11 sectors gain, 12 lose

Of the 23 industry groups into which B of A divides its high yield universe, 11 showed better results on the week, while 12 did not, a deterioration from the 16-7 edge which advancers had held over decliners the week before.

In the week ended Thursday, non-ferrous metals and mining issues continued to show their recently strong performance, with an index-best return of 0.31%, taking back first place from the steelmakers, who had been the strongest group the week before, with a 0.78% return. It was the sixth time in the last seven weeks in which non-ferrous metals and mining was in the Top Five list of the week's best performers, and the fourth week out of seven in which it led all other sub-sectors. In the previous week, the group had been second strongest in the index, with a 0.60% return.

Consumer non-durables also returned 0.31% in the latest week, to share the top spot with non-ferrous metals and mining.

Advertising-dependent media (up 0.28%), industrials (up 0.24%) and energy issues (up 0.22%) rounded out the Top Five for the latest week; energy and industrials had also been in the Top Five the week before, when they were up 0.37% and 0.30%, respectively.

On the downside, wireline telecommunications was the cellar dweller, with a 1.34% loss; the week before, PCS/cellular operators were the worst finishers on the week, losing 0.99%. Wireline had been the second-worst finisher the week before, when it lost 0.78%. Utilities had that unenviable distinction this past week, dropping 1.10%.

Cable/DBS (down 0.67%), transportation (off 0.60%) and finance (down 032%) rounded out the Bottom Five list of the week's worst performers; transportation had also been on the list the week before, when the group lost 0.27%.

On a year-to-date basis, the non-ferrous metals and mining group fattened its cumulative return, to 5.72% from 5.39% the week before. Finance remained a distant second, although this past week's Bottom Five finish sliced its year-to-date return to 3.37% from 3.70% previously.

Dragged down by their 1-2 performance as clearly the worst finishers on the week, wireline telecom and utilities are also clearly the worst performers year-to-date so far, with wireline's cumulative loss widening to 2.90% this past week from 1.58% previously. Utilities, which had a respectable, if unspectacular positive year-to-date return of 0.50% in the week ended Feb. 19, tumbled to a cumulative loss of 0.61%, second-worst in the index, in the week just past.

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