B of A High Yield Broad Market Index up 0.39%%; year-to-date return improves to 4.68%

By Paul Deckelman

New York, Sept 7 - The Banc of America Securities High Yield Broad Market Index gained 0.39% in the week ended Thursday Sept. 2, its fifth consecutive weekly gain following the 0.57% advance seen in the previous week. This swelled its year-to-date return to 4.68%, another 2004 high, from 4.28% the year before, the previous year-to-date peak level.

Banc of America did not formally publish the weekly index this week due to the Labor Day holiday break, which saw an early market close this past Friday, followed by a complete market closure on Monday, but did provide Prospect News with the underlying raw data.

Besides being the fifth straight gain, the latest week's advance was also the 12th in the last 13 weeks and 14th in the last 16 weeks. The index has strongly turned back into positive territory over that stretch, dating back to late May, after the pronounced downturn it had suffered in late April and early May.

In the latest week, the index's spread over Treasuries narrowed very slightly to 456 basis points from 457 bps previously, while its yield-to-worst tightened to 7.82%% from 7.87%.

The more narrowly focused High Yield Large Cap Index continued to largely follow the same pattern as the HY Broad Market Index, rising 0.44% in the latest week, which improved on a 0.66% gain the week before. On a year-to-date basis, Large Cap's cumulative 2004 return fattened to 4.15%, its peak level for 2004, from 3.70% the week before.

Large Cap's spread over Treasuries came in to 441 bps from 443 bps the week before, while its yield to worst meantime improved to 7.74% from 7.80% previously.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,641 issues of $100 million or more - 15 less than a week earlier, chiefly due to the redemption of a number of matured issues, causing the total market value of the issues to fall to $509.2 billion from $512 the week before. The High Yield Large Cap Index, representing the most liquid portion of the high yield world, meantime tracked 591 issues of $300 million or more, five less than the week before; total market value fell to nearly $307.8 billion from $309.2 billion the week before. B of A sees both as reliable proxies for the $750 billion high yield universe.

On a credit-quality basis, the three credit tiers into which B of A divides its index finished in a tightly spaced pattern, separated by just 7/100 of a percentage point. The lowest tier (issues rated B- and below, accounting for 40.61% of the index) had the best return at 0.43%. This was followed by the middle tier - consisting of those issues rated BB-, B+ and B and making up 44.52% of the index - which returned 0.37%, just a shade ahead of the upper credit tier (those issues rated BB+ and BB, comprising 14.87% of the index), which returned 0.36%. The order of finish was the same as in the previous week, when the lowest tier returned 0.67%, the middle tier 0.51% and the top tier 0.47%. This was the third straight week the tiers finished in this order.

The overall advance remains broad-based, with 22 of the 23 industry sectors into which B of A divides its junk bond universe having positive returns in the most recent week, the second time in the last three weeks this pattern has been seen; the week before, all 23 had been in the black.

Entertainment top performer

Entertainment put on the best show of all groups in the most recent week, returning 1.36% - a sharp turnaround from the paltry 0.10% gain the week before, when it had been among the weakest finishers. Utilities had been the most powerful sector that previous week with a 1.28% return.

The transportation grouping - usually found among the weakest sectors - showed a rare burst of strength in the most recent week and moved up to the second best slot, with a 0.79% return.

Chemicals (up 0.65%), followed closely by lodging (up 0.64%) and then finance (up 0.52%) rounded out the Top Five list of the best-performing sectors in the most recent week.

Business services only loser

On the downside, only one sector was actually in the red this past week - business services, and that was only down 0.04%. The week before, business services had been in the Top Five with a 0.70% gain, while PCS/cellular operators had been the weakest finishers with a 0.02% gain, smaller than that of any other sector.

As was also the case in each of the previous two weeks, the Bottom Five list of the weakest finishing sectors was this week filled out by groups that merely had much smaller returns than all of the other sectors in the index. They were non-ferrous metals and mining (up 0.19%), industrials (up 0.21%), advertising-dependent media (up 0.22%) and healthcare (up 0.29%).

Steel #1 year to date

On a year-to-date basis, the steelmakers continue to show the greatest strength, fattening their cumulative gain to 9.40% from 9.04% the week before. Non-ferrous metals and mining companies lost some ground with their Bottom Five finish, but stayed a distant second at 8.80%, up from 8.59% the week before.

Other groups showing notable year-to-date strength include consumer non-durables companies, which improved to 8.08% from 7.67%; chemicals, helped by a Top Five finish that increased their cumulative gain to 7.65% from 6.96%; consumer non-cyclicals, (7.10% up from 6.71%); industrials, a Bottom Fiver but still up to 7.05% from 6.82%; and energy (6.95%, up from 6.61%).

On the downside, despite the transportation sector's unaccustomed Top Five finish, the group - top-heavy with the volatile bonds of the troubled airline sector - remains firmly mired in last place, although its cumulative loss for the year was trimmed to 12.51% from 13.19%. Wireline telecom managed to cut its cumulative loss to 4.04% from 4.36% previously. Those are the only two industry sectors in the red year-to-date.

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