B of A High Yield Broad Market Index up 0.59%; year-to-date return increases to 1.17%

By Paul Deckelman

New York, June 28 - The Banc of America Securities High Yield Broad Market Index rose 0.59% in the week ended Thursday June 24, its third straight weekly gain following the 0.33% gain in the week ended the previous Thursday (June 17), and the 0.51% advance the week before that.

The market measure has also now been up four times in the last five weeks and five out of the last six - and the one down week in that stretch saw just a tiny 0.04% loss in the June 3 week, as the index continues its slow but steady recovery from a pronounced downturn seen in late April and early May.

The year-to-date return meanwhile increased to 1.17% in the latest week from 0.58% the week before.

In the latest week, the index's spread over Treasuries declined to 463 basis points from 467 in the June 17 week, while the yield to worst likewise narrowed to 8.33% from 8.45% the previous week.

B of A's more narrowly focused High Yield Large Cap Index has pretty much followed the same pattern as the HY Broad Market Index, with a 0.66% return in the latest week - its third straight move up - on top of a 0.34% gain the week before and a 0.61% rise the week before. The HY Large Cap Index had been in the red on a year-to-date basis for some weeks, but got back in the black this past week - although the Broad Market Index got there several weeks ago. Large Cap's cumulative 2004 return improved to 0.41% from a 0.25% year-to-date loss seen the week before.

Large Cap's spread over Treasuries - like that of the Broad Market Index - narrowed in the most recent week, to 452 basis points from 455 bps the week before. Its yield to worst meantime declined to 8.31% from 8.41% the week before.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,631 issues of $100 million or more, as the total market value of the issues increased to $496.5 billion from $494.2 billion the week before, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 589 issues of $300 million or more; total market value rose to $301.3 billion from $300 billion the week before. B of A sees both as reliable proxies for the $750 billion high yield universe.

Lowest rated names perform best

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 41.39% of the index) continued to have the best showing, returning 0.65%. That was followed by the middle credit tier - consisting of those issues rated BB-, B+ and B and making up 44.35% of the index - which had a 0.55% return. The upper credit tier (those issues rated BB+ and BB, comprising 14.26% of the index) lagged slightly with a 0.51% return.

In the previous week, the lowest tier had again led, with a 0.42% rise, followed by the upper (up 0.29%) and the middle tier (up 0.25%).

B of A analysts noted that the latest week's performance of the HY Broad Market Index - like the previous week's - was characterized by "broad-based strengths," with 21 of the 23 industry groupings into which B of A divides its high yield universe showing gains. In the two previous weeks, the split had been even starker, with 22 of the sectors posting gains each of those weeks and just one on the downside.

The analysts also noted that the primary market "was busy," with 12 issuers having priced $3.4 billion of new paper through last Thursday. They called the week's supply of new debt "the highest we have seen in the past six weeks," when the average weekly supply of new bonds came out to $2.2 billion. Even as bond sales were picking up, the analysts noted: "Demand growth, measured by the High Yield mutual fund flows, remained flat," with AMG Data Services saying that weekly reporting junk bond funds saw a net cash outflow of $69 million during the week ended last Wednesday.

Technology week's #1

Technology issues did the best in the most recent week, rising 1.02%. It was a sizable turnaround from the previous week, when the techs were on the Bottom Five list of the weakest finishers, with a 0.07% return, far smaller than virtually all other sectors. The previous week's leader, meantime, wireline telecommunications operators, continued their recent strong showing with a 0.96% return, second best in the index. It was the seventh consecutive week in which wireline has been among the strongest finishers, as the grouping continues to bounce back from sharp losses it had suffered earlier in the year.

Transportation (up 0.94%), utilities (up 0.92%) and steelmakers and chemicals (each at 0.74%) made up the rest of the latest week's Top Five (or, in this case, Top Six) list of best performing industry groupings.

It was the second straight week in which the airline-heavy transportation sector, which has mostly been a big loser this year, was among the winners, following the prior week's 0.53% return. And it was the third straight week among the best finishers for the utility names, which had also gone up 0.60% in the week ended June 17).

Cable/DBS is bottom sector

On the downside, there were only two sectors actually in the red this past week - cable/DBS operators (down 0.13%) and PCS/cellular companies (off 0.04%). PCS/cellular had been among the weakest finishers the previous week, with just a 0.04% gain, far below just about everyone else's. Advertising-dependent media had been the worst finisher in that June 17 week, down 0.12%. That group was in the Bottom Five for a second straight week, although its 0.34% gain was merely the smallest positive showing.

Consumer non-durables companies (up 0.38%) and healthcare (up 0.45%) rounded out the Bottom Five list of this past week's latest finishers. Healthcare had also been in the Bottom Five the previous week, when it returned just 0.07%.

On a year-to-date basis, consumer non-durables companies continued to have the best return, fattening to 5.09% from 4.69% the week before.

Non-ferrous metals and mining's cumulative return remained the second best, as it strengthened to 4.53% from 3.95% the week before, although the steelmakers moved into a tie with them at 4.53%, helped by this week's Top Five performance; the steelers were up from 3.76% the week before. Other strong performers so far this year include consumer non-cyclical companies, which moved up to 3.85% from 3.30%, and chemical companies, also at 3.85%, up from 3.08% the week before. Industrials were returning 3.16%.

On the downside, the transportation group's Top Five finish didn't trim its index-worst year-to-date loss to 10.03% from 10.87% the week before.

Wireline, buoyed by its seventh straight week in the Top Five, continued to recover ground it had lost earlier in the year, its cumulative loss slashed to 3.67% from 4.61% previously.

Utilities, another Top Five finisher, also cut their year-to-date deficit, to 0.64% from 1.54% the week before. But cable/DBS operators, with the worst showing this past week, widened their year-to-date loss a bit, to 1.26% from negative 1.13% the week before.

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