B of A High Yield Broad Market Index up 0.61%; year-to-date return increases to 2.08%

By Paul Deckelman

New York, July 13 - The Banc of America Securities High Yield Broad Market Index rose 0.61% in the week ended Thursday July 8, its fifth straight weekly gain following the 0.28% gain in the previous week.

The market measure has also now been up in seven out of the last eight weeks - 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 the pronounced downturn it had suffered in late April and early May.

The year-to-date return meanwhile increased to 2.08% in the latest week from 1.46% the week before.

Bank of America did not officially publish its weekly indexes of junk bond market performance - the High Yield Broad Market Index and High Yield Large-Capitalization Index - in that July 1 week due to the 31/2-day Independence Day holiday. However, it did make selected raw data for the week available to Prospect News.

In the latest week, the index's spread over Treasuries rose to 479 basis points from 474 in the July 1 week, although the yield-to-worst was actually improved to 8.28% from 8.34%.

The more narrowly focused High Yield Large Cap Index continued to follow pretty much the same pattern as the HY Broad Market Index, with a 0.70% return in the latest week - its fifth straight move up - on top of a 0.23% gain the week before. On a year-to-date basis, Large Cap's cumulative 2004 return more than doubled, to 1.34%, from 0.64% the week before.

Large Cap's spread over Treasuries edged downward in the most recent week, to 462 basis points from 464 bps the week before. Its yield-to-worst meantime narrowed appreciably to 8.20% from 8.32% previously.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,635 issues of $100 million or more, as the total market value of the issues held steady at some $498.2 billion, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 580 issues of $300 million or more; total market value declined slightly to $299.4 billion from $300.6 billion the week before. B of A sees both as reliable proxies for the $750 billion high yield universe.

On a credit basis, the middle of the three credit tiers into which B of A divides its index (consisting of those issues rated BB-, B+ and B and making up 44.09% of the index) had the best return, 0.75%. This was followed by the upper tier - those issues rated BB+ and BB, comprising 14.30% of the index - which returned 0.69%. The lowest of the three tiers (issues rated B- and below, accounting for 41.61% of the index) brought up the rear, with a 0.44% return on the week.

It was the second straight week in which the lower tier had been on the bottom, following several weeks before that in which the lowest tier had been the top performer. In the week ended July 1, the order of finish had been the upper tier (up 0.43%), followed by the middle tier (up 0.30%) and then the lower tier (up 0.21%).

B of A analysts noted that a holiday mood slowed down the new issuance market in the most recent week, with just four issuers having raised a total $480 million during the week through Thursday. They said that demand growth, as measured by high yield mutual fund flows, "picked up," with AMG Data Services reporting a net inflow of $440 million in the week ended last Wednesday, counting only those funds that report on a weekly basis. The behavior of the junk bond mutual fund flows is a closely watched barometer of overall market liquidity trends.

The recent rise in the HY Large Cap Index has been broad-based, and the latest week was no exception, with just one of the 23 industry sectors into which B of A divides its high yield universe showing an actual negative return on the week - transportation, which lost 0.15%. The other 22 industry groupings were up, although some barely inched into positive territory. In the previous week, 20 sectors had been in the black and just three were in the red.

Steel top performer

Steel was the clear leader in the most recent week, returning 1.29%. It was the third straight week in which the steelers were in the Top Five grouping of the week's best finishers. The group had returned 0.86% the week before, when the best finisher had been transportation, with a 1.67% gain.

Utilities were the second-best finishers in the latest week, up 1.08%. The Top Five was rounded out by finance issues (up 0.99%), paper and packaging (up 0.97%) and non-ferrous metals and mining, with a 0.94% return. In the previous week, the utilities had turned in a paltry 0.08% return, weak enough to land on the Bottom Five list of that week's worst laggards. Finance had also been in the Bottom Five, up just 0.05%, while paper and packaging had been in the Top Five with a 0.72% increase.

On the downside, as mentioned, there actually was only one industry grouping - transportation - in the red. The airline-heavy group went from first to worst, exchanging the previous week's 1.67% return for a 0.15% decline.

The other members of the latest week's Bottom Five all had positive returns - but considerably smaller than those of most other sectors. The weakest among them was wireline telecommunications operators, up just 0.01%. It was the second straight week in the Bottom Five for wireline, which had been the absolute worst finisher the previous week, when it lost 1.52%.

Technology (up just 0.02%), cable/DBS operators (up 0.35%) and consumer non-durables companies (up 0.39%) rounded out the latest week's Bottom Five; It was the second straight week near the bottom for the tech names, which had lost 0.13% the week before, and the third straight week on the list for cable/DBS, which lost 0.07% the week before.

Steel now #1 YTD

On a year-to-date basis, the steelmakers, powered by this week's index-leading performance, as well as their strong showing previous two weeks, have now taken over the top spot, with the group's return swelling to 6.79%, far surpassing the previous leader, consumer non-durables companies at 6.01%. They were followed by non-ferrous metals and mining companies (5.72%), a Top Five finisher this week, chemicals (4.94%), consumer non cyclical names (4.67%) and industrials (4.10%).

On the downside, the transportation group remained the worst performer year-to-date, with an 8.67% cumulative loss. That was followed by wireline (a 5.13% loss) and cable/DBS operators (down 0.98%). No other industry groupings were in the red for the year to date.

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