B of A High Yield Broad Market Index up 0.36%; 2004 gain rises to 1.86%

By Paul Deckelman

New York, March 15 - The Banc of America Securities High Yield Broad Market Index was in the black for a second consecutive time in the week ended Thursday March 11, registering a 0.36% return, on top of the 0.39% rise seen in the previous week.

The latest week's gain pushed the index's year-to-date return up to 1.86% from 1.50% the week before.

After a strong start to the year, continuing the momentum seen in the unusually robust 2003 fourth quarter, the HY Broad Market Index's performance has lately been choppy - up a week or so here, down a week or so there - ever since the week ended Jan. 29, when the index had posted its first weekly loss since the middle of last August.

In the week ended Thursday, even as the index posted a gain, its spread over Treasuries widened out sharply to 512 basis points versus the previous week's 494 bps in line with strong gains in the Treasuries market. The latest week's spread tops the previous high for the year of 498 bps seen in the week ended Feb. 5 and again in the week ended Feb. 26. However, the index's yield-to-worst narrowed to 7.64% from 7.72% the previous week.

B of A's High Yield Large Cap Index continued to show a similar, pattern; in the week ended Thursday it returned 0.35% on top of the previous week's 0.46% gain. The cumulative return for 2004 improved to 1.37% from 1.01% the week before.

Large Cap's spread over Treasuries - like that of the HY Broad Market Index - ballooned in the week ended Thursday to 495 basis points, a new high for the year, from 475 bps the week before; the new peak eclipsed the previous high-water mark for the year, 482 bps, which was seen in the week ended Feb. 5 and again in the week ended Feb. 26. Large Cap's yield-to-worst also was reduced, to 7.59% from 7.65% the week before.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,664 issues of $100 million or more, having a total market value of over $511 billion, up from nearly $508 billion the week before, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 579 issues of $300 million or more having a total market value of nearly $304 billion, up from about $302 billion the previous week. B of A sees both as reliable proxies for the $750 billion high yield universe.

Top credit tier strongest

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 15.30% of the index - had the best return at 0.96%. The middle tier (consisting of those issues rated BB-, B+ and B and making up 45.68% of the index) was up 0.43%. The lowest of the three divisions - issues rated B- and below, accounting for 39.02% of the index - brought up the rear with a paltry 0.04% advance.

Even amid pronounced volatility in the credit markets, fueled by the weak February employment data, concerns over corporate profits and the return of terrorism-generated investor angst with the murderous attack in Madrid, the high yield secondary sphere managed to bang out a gain, "on the back of a strong Treasury market," B of A analysts said.

They also noted a "good tone" in the primary market, with new bonds having total proceeds of $2.5 billion having priced in the week ended Thursday, and "no lack of high yield paper in the pipeline, as issuers attracted by the favorable market tone and low interest rate environment line up to bring their offerings."

The analysts further declared that the latest AMG Data Services weekly mutual fund flow number (a net inflow of nearly $308 million in the week ended last Wednesday) "also points to continued interest in this asset class."

For a second consecutive week, 20 out of the 23 industry groups into which B of A divides its high yield universe showed positive returns, with just three of the sub-sectors in the red - a return to the kind of lopsided broad-based advancer-decliner ratios routinely seen during the heady first few weeks of the year.

Entertainment top

In the week ended Thursday, entertainment issuers had the best gain, returning 1.12%. The week before, the utilities had been in the top spot, with a 0.99% return, while entertainment had been one of the weakest performers in the index, with a 0.07% loss.

Lodging returned 1.01% in the latest week, second-strongest showing in the index. Consumer non-durables companies (up 0.74%), non-ferrous metals and mining (a 0.66% gain) and energy (up 0.65%) rounded out the Top Five list of the best-performing sectors for the week. Consumer non-durables had also been in the Top Five the two previous weeks, with a 0.70% return, second-best in the index, in the week ended March 4 and a second-best finish in the week ended Feb. 26, with a 0.31% gain.

On the downside, transportation issues dropped an index-worst 0.23% in the latest week, taking possession of the cellar from the cable/DBS operators, who had been down 0.08% the week before, when the transportations, in fact, had been in the Top Five with a 0.45% return. But the transportation grouping has been on the Bottom Five list of the week's worst finishers two weeks out of the last three.

Wireline telecommunications (down 0.19%), healthcare (down 0.05%), PCS/cellular (up a mere 0.10%) and technology (up 0.12%) rounded out the Bottom Five. Healthcare had also been in the Bottom Five the week before, when it eased 0.03%.

Helped by its Top Five performance this past week, the non-ferrous metals and mining group continued to lead on a year-to-date basis, fattening its cumulative return to 6.75% from 6.05% the week before. Finance remained a distant second, although it did improve its year-to-date return to 4.10%from 3.57% previously. Consumer non-cyclicals moved up to a 3.88% year-to-date return, with consumer non-durables not far behind, with a 3.74% cumulative gain.

On the downside, wireline telecom remains clearly the worst performer on year-to-date basis, and the only sub-sector in the red, its loss for the year deepening to 2.72% from 2.57% the week before. Publishing and healthcare, the latter a Bottom Five name this past week, both show cumulative returns of just 0.38%. Other weaker-than-average sub-sectors include this past week's index-worst grouping, transportation, (up 0.46%), utilities (up 0.50%) and cable/DBS (up 0.79%).

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