B of A High Yield Broad Market Index down 0.29%; 2004 gain cut to 1.83%

By Paul Deckelman

New York, April 19- The Banc of America Securities High Yield Broad Market Index was back in negative territory in the week ended Thursday April 15, down 0.29%, which followed a 0.21% gain in the holiday-shortened week ended April 8. That cut the market measure's year-to-date return to 1.83% from 2.13% the week before (when Bank of America Securities did not officially publish its weekly compilation of high yield statistics because of the holiday break, although Prospect News was able to distill the results from other published B of A data).

In the week ended Thursday, the index's spread over Treasuries narrowed significantly for a third consecutive week to 460 bps from 471 bps on April 8, and well down from 527 bps - the high for the year so far - which had been seen in the week ended March 25. However, the index's yield-to-worst widened to 7.79% from 7.68% the week before.

After a strong start to the year, continuing the momentum seen in the unusually robust 2003 fourth quarter, the High Yield 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, breaking an amazing winning streak that saw it posting spectacular gains.

B of A's more narrowly focused High Yield Large Cap Index has followed that same pattern, and like the High Yield Broad Market Index, was back on the downside in the week ended Thursday with a 0.30% loss, versus the previous week's 0.28% gain. The cumulative return for 2004 fell to 1.30% from 1.60% the week before.

Large Cap's spread over Treasuries - like that of the High Yield Broad Market Index - improved in the week ended Thursday, narrowing to 445 bps from 455 bps in the week ended April 8 and well inside the 512 bps spread the week ended March 25 when the Large Cap Index, like the Broad Market Index, saw its high spread for the year. While the spread was narrowing in the most recent week, the yield to worse was widened to 7.75% from 7.64%.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,667 issues of $100 million or more, having a total market value of about $508 billion, down from nearly $510 billion the week before, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 585 issues of $300 million or more, having a total market value of nearly $305 billion. B of A sees both as reliable proxies for the $750 billion high yield universe.

Bottom credit tier shows best return

On a credit basis, the lowest of the three credit tiers into which B of A divides its index - issues rated B- and below, accounting for 40.15% of the index - had the smallest loss in this past week, 0.12%. The middle credit tier (consisting of those issues rated BB-, B+ and B and making up 45.28% of the index) was next, with a 0.36% loss. The highest credit tier - those credits rated BB+ and BB, comprising 14.57% of the index - had the worst loss of the three, down 0.50% on the week. In the each of the previous two weeks, the order of finish had been the same; in the week ended April 8, the lowest tier was up 0.70%, the middle tier up 0.01% and the top tier was down 0.47% on the week.

Of the 23 industry groupings into which B of A divides its high yield universe, 19 showed negative returns in the latest week, against just four in positive territory - a sharp reversal of the week before when 16 sub-sectors advanced against seven decliners.

B of A analysts said that the junk index had retreated on the back of the Treasury market sell-off earlier in the week. New issuance meantime slowed, with $2.3 billion having priced in the week up to Thursday's close - less than half of the $5.2 billion seen the week before. On the demand side, the analysts noted what they termed the "relatively small" $17 million outflow from high-yield mutual funds reported by AMG Data Services.

Transportation has biggest loss

In the latest week, transportation issues, dominated by the volatile airline names, plummeted an index-worst 1.48%. This was a complete reversal of the strength they had shown over the previous two weeks, which included the group's index-best 1.92% return in the week ended April 1 and a 1.31% gain - second-best in the index-seen in the week ended April 8. In that prior week, the gaming and the paper and packaging groupings had been tied for the worst showing, each down 0.16%.

PCS/cellular names lost 0.73% in the latest week, followed closely by healthcare operators (down 0.72%). Steel (down 0.68%) and finance (down 0.54%) rounded out the Bottom Five list of the week's worst performers. In the previous week, PCS/cellular had made the Top Five list of the best-performing sub-sectors with a 0.89% gain, and the steelers had topped everyone, with an index-best 1.58%.

On the upside in the latest week, lodging was the best of a weak field, with a 0.20% gain. As noted, steel had been the best performer the week before, when lodging had been in the Bottom Five with a 0.15% loss.

Consumer non-durables had the second-best showing in the most recent week, up 0.15%. Gaming (up 0.10%) and consumer non-cyclical names (up 0.03%), rounded out the latest week's Top Five, as did chemicals, down 0.01%. Gaming, as noted, had tied for the unenviable distinction of being the worst performer the previous week.

On a year-to-date basis, the non-ferrous metals and mining group remains by far the strongest, despite its recently mediocre showing (including inclusion on the Bottom Five list in the April 8 week), still enjoying the momentum of the strong gains it notched early in the year, although its year-to-date return dipped to 6.58% from 7.05% the week before.

Steel remains in second place year-to-date, although its Bottom-Five finish this past week cut its cumulative return to 5.15% from 5.87% the week before.

Consumer non-durables companies, helped by their Top Five placement this past week, fattened slightly to 4.59% from 4.43% previously. Finance eased to 4.41% from 4.98% the week before, although consumer non-cyclicals companies inched up to a 4.13% return for the year from 4.10%.

Wireline in last place YTD

Wireline telecom remains the worst-performing sector on a year-to-date basis, its negative return growing to 3.32% from 2.82% the week before.

Transportation issues remain the second-worst finishers year-to-date, with the group's index-worst showing this past week causing its year-to-date deficit to balloon out to 3.12% from 1.67% the week before.

Publishing has also dipped into negative territory for the year to date, with a 0.03% decline.

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