B of A High Yield Broad Market Index up 0.42%; year-to-date return improves to 6.18%

By Paul Deckelman

New York, Sept 27 - The Banc of America Securities High Yield Broad Market Index rose 0.42% in the week ended Sept. 23, its eighth straight weekly advance, following the 0.62% gain in the previous week (ended Sept. 16). The latest week's gain was also the 15th in the last 16 weeks and 17th in the last 19 weeks. Since late May, when it was coming off a prolonged negative stretch which had put it into the red, the index has strongly turned back into positive territory.

Year to date, the index has returned 6.18%, a new 2004 high, up from 5.74%, the previous year-to-date peak level.

In the latest week, the index's spread over Treasuries declined to 439 basis points from 449 basis points previously, while its yield to worst continued to tighten, to 7.58% from 7.65%.

The more narrowly focused High Yield Large Cap Index continued to follow essentially the same pattern as the HY Broad Market Index, rising 0.47% in the latest week, on top of the 0.67% gain the week before. Year to date, Large Cap's cumulative 2004 return rose to 5.82%, its new peak level for 2004, from 5.33% the week before, which had been the previous high point.

Large Cap's spread over Treasuries narrowed to 421 basis points from 432 basis points the previous week, while its yield to worst meantime improved to 7.47% from 7.54% previously.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,645 issues of $100 million or more, as the total market value of the issues rose to almost $513.3 billion from about $512 billion the week before. The High Yield Large Cap Index, representing the most liquid portion of the high-yield world, meantime tracked 590 issues of $300 million or more; total market value edged up to $309.8 billion from $309.3 billion the week before. Banc of America sees both as reliable proxies for the $750 billion high-yield universe.

BB, BB+ tier performs best

On a credit-quality basis, the highest of the three credit tiers into which Banc of America divides its index - those issues rated BB+ and BB, comprising 14.34% of the index - had the best return, 0.63%, followed by the middle credit tier (consisting of those issues rated BB-, B+ and B and making up 49.06% of the index), at 0.52%. Bringing up the rear was the lowest credit tier (those issues rated B- and below, accounting for 36.60% of the index), with A 0.34% gain. The order of finish represents a sharp turnaround from the previous week, when the lowest tier returned 0.66%, the top tier 0.61% and the middle tier 0.59%.

Banc of America analysts noted that the strongest performance was turned in by issues rated BB and better, which returned 0.59%, followed by the single-B issues, up 0.37%, with issues rated CCC and below up 0.21%. They also pointed out that new-deal activity "picked up substantially," with $4.4 billion priced in the week through Thursday's close - a marked improvement from the previous week (four issues totaling less than $1 billion) and the largest weekly volume since $4.6 billion priced during the first week in May. They further observed that on the demand side, the AMG high-yield mutual funds flow numbers - a key barometer of overall junk market liquidity trends - "continued their positive trend," with a $101 million inflow seen in the week ended Wednesday, the fifth straight week in which more money has come into the funds than has left them.

With such favorable technical factors continuing to dominate the picture, the overall advance remains broad based, with 21 of the 23 industry sectors into which Banc of America divides its junk bond universe having positive returns in the most recent week, and just two in negative territory. That follows the previous week's 22-1 positive split.

Steelmakers top performers

Steelmakers were the top performers in the latest week, returning an even 1%. It was the second straight week the steelmakers were among the Top Five best finishers on the week, following their 0.97% gain in the week ended Sept. 16. That week, wireline telecommunications operators had the best showing - for a second straight week, in fact - when they had been up 1.17%. Wireline was still in the Top Five this past week, with a 0.76% gain.

Non-ferrous metals and mining (up 0.95%) was the second-strongest group in the latest week. Energy (up 0.74%) and transportation, showing unaccustomed strength with a 0.71% return, rounded out the latest week's Top Five list. In the previous week, the non-ferrous metals group had finished in a three-way tie for the final spot in the Top Five, with a 0.70% return. The transportation issues had been the sole industry sector in the red, although not by much, with a 0.03% loss that week.

PCS/cellular worst performer

This past week, just two sectors were actually in the red - PCS/cellular operators, down 0.33%, and consumer durables companies, off 0.18%. Consumer durables had also been on the Bottom Five list of weakest finishers the previous week, with a return of 0.30%, smaller than almost all other sectors.

Gaming (off 0.21%), chemicals (up 0.24%) and cable/DBS operators (up 0.28%) rounded out this latest week's Bottom Five, by posting smaller gains than all of the other sectors that were in the black. In the previous week, the chemicals group had made the Top Five for a third straight week, with a 1% weekly return. Cable/DBS had also been among the bottom five the previous week, with just a 0.19% gain that week.

On a year-to-date basis, the steel sector - boosted by its index-best performance - widened its dominance, upping its cumulative return to 12.09% from 10.99% the week before.

Non-ferrous metals and mining, making the Top Five for a second straight week, pushed up to 11.30% from 10.25% the week before.

Although they finished in this week's Bottom Five, the chemical companies' small gain was still enough to boost their year-to-date return to 9.61% from 9.34% previously. Other groups showing notable year-to-date strength include consumer non-durables companies, which firmed to 9.08% from 8.47% the week before; energy (8.82%, up from 8.02%), industrials (up to 8.57% from 8.10%); and consumer non-cyclicals (8.53%, up from 7.93%).

On the downside, the transportation sector's cumulative return was helped by its strong, Top Five finish in the most recent week - although the sector, weighed down as it is by the volatile bonds of the deeply troubled airline sector, is still clearly the worst performer, even as its year-to-date loss narrowed a bit to 11.42% from 12.05%.

Wireline telecom - helped by its Top Five showing, on top of two previous weeks as the strongest of all performers - continues to improve sharply, its cumulative loss now cut to 1.45% from 2.20% previously.

Those are the only two industry sectors in the red year to date.

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