B of A High Yield Broad Market Index up 0.39%; 2004 gain rises to 1.50%

By Paul Deckelman

New York, March 8 - The Banc of America Securities High Yield Broad Market Index was back on the upside in the week ended Thursday (March 4), continuing its recent zig-zag pattern of up a week or so here, down a week or so there. That choppy pattern has been seen ever since the week ended Jan. 29, when the index had posted its first weekly loss since the middle of last August.

The index returned 0.39% in the week, a turnaround from the week before (ended Feb. 26), during which it had lost 0.22%.

The latest week's gain pushed the index's year-to-date return up to 1.50% from 1.10% the week before.

In the week ended Thursday, the index posted a spread over Treasuries of 494 basis points, having narrowed slightly from 498 bps the week before, which had matched that measure's high for the year, first set back in the week ended Feb. 5. Its yield to worst likewise came in to 7.72% from 7.76% the week before.

B of A's High Yield Large Cap Index continued to show a similar, though somewhat more pronounced pattern; in the week ended Thursday, it returned 0.46% versus the previous week's 0.40% decline. The cumulative return for 2004 improved to 1.01% from 0.56% the week before.

Large Cap's spread over Treasuries - like that of the HY Broad Market Index - narrowed in the week ended Thursday to 475 basis points from 482 bps the week before, which had matched the year's high, set during the week ended Feb. 5. Large Cap's yield to worst also was reduced to 7.65% from 7.73% the week before.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,657 issues of $100 million or more having a total market value of nearly $508 billion, up a little from over $506 billion, the week before, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 578 issues of $300 million or more having a total market value of about $302 billion, up from $301 billion 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, comprising 14.89% of the index - had the best return at 0.44%, although the difference between the top tier and other two tiers was minimal. The lower tier - issues rated B- and below, accounting for 39.48% of the index - returned 0.41%, while the middle credit tier (consisting of those issues rated BB-, B+ and B and making up 45.63% of the index) was up 0.39%.

In the previous week, the top tier was the only one in the black, and just barely at that, up 0.08%, while the middle tier lost 0.20% and the lower tier bringing up the rear, with a 0.90% loss, the second straight week those tiers had finished in that order.

B of A analysts said that the high yield market "maintained an overall firm tone throughout the week," advancing in each of the previous five trading days. They also noted that the primary market remained active, with total new issuance for March already totaling $3 billion up to and including Thursday's session, and an approximately equal amount of new bonds on the forward calendar.

The latest week's advance was broad-based, a return to the kind of lopsided advancer-decliner ratios routinely seen during the heady first few weeks of the year. Of the 23 industry groups into which B of A divides its high yield universe, 20 showed better results on the week, while just three were in the red - and even those three were just barely negative. The week before, when the index had declined, 11 industry subsectors showed better results on the week while 12 didn't.

Utilities are biggest gainers

In the week ended Thursday, utility issues were the biggest gainers, returning 0.99%, and taking over the top spot from the non-ferrous metals and mining issues, which had led the index in the week ended Feb. 26 with a 0.31% return and which consistently been on the Top Five list of best-performing sub-sectors in the preceding weeks. It was a sharp turnaround for utilities, which had been on the Bottom Five list of the weakest sectors the week before, when it lost 1.10%.

Consumer non-durables (up 0.70%), business services (up 0.59%), consumer durables (up 0.48%) and paper and packaging tied for fifth place with transportation (up 0.45%),) rounded out the Top Five list in the latest week. Consumer non-durables had also placed second during the Feb. 26 week, with a 0.31% gain. Transportation had been among the Bottom Five the week before, with a 0.60% loss.

On the downside, just three of the sub-sectors were actually in the red on the week - and even then, with only negligible losses, while the others merely posted much smaller gains than the rest of the sub-sectors.

Cable/DBS issues had the weakest showing, easing 0.08%. The previous week, wireline telecommunications led the losers' list with a 1.34% loss. The cablers had also been on the Bottom Five list the week before, when they lost 0.67%.

Entertainment (down 0.07%) and healthcare (off 0.03%) were the other sub-sectors in the red this past week. Rounding out the Bottom Five were chemicals (up 0.10%) and publishing (up 0.19%).

Even though it wasn't in the Top Five finishers this past week, the non-ferrous metals and mining group continued to lead on a year-to-date basis, fattening its cumulative return to 6.05% from 5.72% the week before. Finance remained a distant second, although it did improve its year-to-date return to 3.57% from 3.37% previously. Consumer non-cyclicals have moved up to a 3.24% year-to-date return.

Wireline telecom, despite a 0.37% gain in the latest week, remained clearly the worst performer on year-to-date basis and the only one in the red, although its cumulative loss so far has narrowed to 2.57% from 2.90% the week before. Publishing, with a weaker-than average finish, became the second-worst year-to-date group, up just 0.23% since the start of the year.

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