B of A High Yield Broad Market Index up 0.04%; 2004 gain rises to 1.88%

By Paul Deckelman

New York, April 26- The Banc of America Securities High Yield Broad Market Index continued to zig-zag, firming ever so slightly in the week ended Thursday April 22 with a 0.04% gain. This followed a 0.29% retreat in the week ended April 15, which had in turn followed a similar-sized gain the week before. That improved the market measure's year-to-date return slightly, to 1.88% from 1.83% the week before.

In recent weeks, the HY Broad Market Index - which started the year strongly, continuing the momentum seen in the unusually robust 2003 fourth quarter - has turned in an uneven performance, up a week or so here, down a week or so there, starting with 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, the index's spread over Treasuries narrowed very slightly to 459 basis points from 460 bps in the April 15 week. Since hitting its high for the year of 527 bps in the week ended March 25 the spread has tightened noticeably. Meanwhile, the yield-to-worst was slightly wider, at 7.80%, from 7.79% the week before.

B of A's more narrowly focused High Yield Large Cap Index has followed the same recently choppy pattern as the HY Broad Market index and was off a barely visible 0.02% in the week ended Thursday, after having posted a 0.30% loss the week before. The cumulative return for 2004 fell to 1.28% from 1.30% the week before.

Large Cap's spread over Treasuries - like that of the HY Broad Market Index - was little changed in the most recent week, at 446 basis points over, versus 445 bps in the week ended April 15, though still well inside the year's high 512 bps spread the week ended March 25. The yield-to-worse was meantime widening slightly to 7.78% from 7.75%.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,662 issues of $100 million or more, having a total market value of nearly $510 billion, up from around $508 billion the week before, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 587 issues of $300 million or more, having a total market value of nearly $307 billion, up from nearly $305 billion the week before. B of A sees both as reliable proxies for the $750 billion high yield universe.

On a credit basis, there was not much difference in the performance of the three credit tiers into which B of A divides its index, all tightly grouped within 0.13% of one another. The middle credit tier (consisting of those issues rated BB-, B+ and B and making up 45.35% of the index) was the only one is positive territory, with a 0.10% return; the lowest grouping - issues rated B- and below, accounting for 40.25% of the index - had a flat 0.00% break-even finish, while the highest credit tier - those credits rated BB+ and BB, comprising 14.40% of the index - lagged slightly with a 0.03% loss.

Of the 23 industry groupings into which B of A divides its high yield universe, 14 showed positive returns, eight were in negative territory and one - gaming - was absolutely flat, with neither a loss nor a gain. A week earlier, 19 subsectors showed negative returns, against just four in positive territory.

B of A analysts said in the latest week, "positive earnings announcements contributed to a firmer tone" that helped the junk index edge up.

They noted that the pace of primary market issuance "remained healthy," with $2.7 billion of new junk bonds priced as of Thursday's close, while on the demand side, they noted the $426 million outflow from high yield mutual funds reported by AMG Data Services.

"Although this outflow pulls [year-to-date] cumulative flows more into the red," at some $2.4 billion, the analysts said, they pointed out that "it is important to note that mutual funds are only a portion of the HY market's source of demand."

Chemicals lead gains

In the latest week, chemical producers led all sub-sectors with a 0.99% return; a week earlier, the chemicals group, while making the Top Five list of best performers in a generally weak market, had actually posted a small (0.01%) loss. Lodging had been the best performer the week before, when it was up 0.20%.

Paper and packaging was the second-best performer on the week, up 0.47%, while healthcare (up 0.43%), cable/DBS (up 0.41%) and PCS/cellular (up 0.39%) rounded out the Top Five for the latest week. In the previous week, healthcare and PCS/cellular had both been on the Bottom Five list of the worst performing sectors, with losses of 0.72% and 0.73%, respectively.

On the downside, wireline telecommunications had the worst showing in the most recent week, down 1.80%, while the airline-heavy transportation sub-sector had a 1.51% loss. In the previous week, the transportation issues had been the worst performers in the index, plummeting 1.48%.

Utilities (down 0.39%), lodging and technology (both down 0.25%) rounded out the Bottom Five list in the latest week. As already noted, lodging had been the best performer in the index in the previous week.

On a year-to-date basis, the non-ferrous metals and mining group is still by far the strongest, despite its recently mediocre showing, still enjoying the momentum of the strong gains it notched early in the year; helped by a positive return for the week (0.13%), the group's year-to-date return fattened to 6.72% from 6.58% the previous week.

Steel likewise turned in a positive performance on the week (0.39%) and solidified its hold on second-place in total returns for the year so far, improving to 5.56% from 5.15% the week before.

Consumer non-durables companies, the finance sub-sector and the consumer non-cyclical names were in a tight third-place cluster, with year-to-date returns of 4.48%, 4.43% and 4.41%, respectively.

Wireline telecom remains the worst-performing sector on a year-to-date basis, its index-worst showing in the latest week pushing its cumulative negative return down to 5.06% from 3.32% the week before.

Transportation issues remain the second-worst finishers year-to-date, with the group's sizable loss in the latest week dropping the grouping to a 4.58% year-to-date deficit from 3.12% the week before.

Utilities, hurt by their Bottom-Five performance on the week, were down 0.14% year-to-date.

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