B of A High Yield Broad Market Index up 0.29%; year-to-date return 9.57%

By Paul Deckelman

New York, Nov. 30 - The Banc of America Securities High Yield Broad Market Index was up for a fifth consecutive week, returning 0.29% in the week ended Wednesday, Nov. 24. This followed a 0.52% gain in the week ended Thursday, Nov. 18.

B of A did not officially publish its weekly High Yield Broad Market and High Yield Large Cap indexes, due to the Thanksgiving Day holiday, which saw an early market close last Wednesday and Friday, sandwiching a full closure on Thursday, but did make its raw data available to Prospect News. Because of the market close last Thursday, B of A calculated the index for the latest week on a Wednesday-to-Wednesday basis, rather than the usual Thursday-to-Thursday calculation, meaning that while the results are roughly comparable to the previous week's, the comparison is not exact.

For the year to date so far, the HY Broad Market Index has returned 9.57%, its 2004 peak level, up from 9.39% the week before, which was the previous peak level for the year.

Including the latest weekly result, the index has now risen in seven weeks out of the past eight, in 15 weeks out of the last 17, and in 24 weeks out of the last 28, an overwhelmingly positive stretch that dates back to late May, when the index began to bounce strongly back from a prolonged negative streak which had put it into the red during much of the first part of the year.

The index's spread over Treasuries narrowed to 355 basis points from 371 basis points the week before, while its yield to worst narrowed slightly to 7.07% from 7.10% week before.

Large Cap Index up 0.32%

The more narrowly focused High Yield Large Cap Index continued to follow the same pattern as the HY Broad Market Index, posting a fifth straight weekly gain, rising 0.32% on top of the previous week's 0.59% advance. The year-to-date return increased to a new 2004 peak level of 9.37% from 9.19%, the previous high-water mark for the year. Large Cap's spread over Treasuries came in to 340 basis points from 354 basis points, while its yield to worst edged downward to 6.97% from 6.99% previously.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,665 issues of $100 million or more, up from 1,657 issues the week before, while the overall market value of the issues increased to $537.5 billion from $534 billion the previous week. The High Yield Large Cap Index, representing the most liquid portion of the high-yield world, meantime tracked 597 issues of $300 million or more, up from 592 the previous week, with total market value rising to $327.7 billion from just under $324 billion. B of A sees both as reliable proxies for the $750 billion high-yield universe.

Lowest credit tier outperforms

On a credit-quality basis, the lowest of the three credit tiers into which B of A divides its index - those issues rated B- and below, accounting for 39.94% of the index - had the best return for a fourth straight week, gaining 0.50.%. The topmost credit tier (issues rated BB+ and BB, comprising 15.81% of the index) was second with an 0.16% return, edging out the middle credit tier - those issues rated BB-, B+ and B, making up 44.25% of the index - which had a 0.14% return.

The order of finish was the same in the previous week, when the lowest tier led the way with a 0.82% gain, followed by the top tier, with a 0.54% return, while the middle tier returned 0.23%.

All sectors see positive returns

For a second consecutive week, all 23 of the industry sectors into which B of A divides its junk bond universe had positive returns, in line with the trend lately of broad-based strength in the index, which has seen either all of the sectors or almost all of them in the black over most of the recent weeks.

Wireline best performer of week

In the most recent week, wireline telecommunications was the best-performing sector, with a 0.73% return, replacing transportation in the top spot. The transportation group had led all comers the week before, with a 2.48% return, although the wireline operators had also made it onto the Top Five list of best performers in that Nov. 18 week with a 1.16% gain, second best in the index.

In the latest week, second-best honors went to the PCS/cellular operators, which were up 0.70%. Entertainment (up 0.53%), cable/DBS operators (up 0.49%) and non-ferrous metals and mining (up 0.39%) rounded out the latest week's Top Five list. The cable/DBS and entertainment sectors had also been in the Top Five the week before, when they had returned 0.96% and 0.74%, respectively.

Steelmakers weakest in week

On the downside, there was no downside in the strictest sense, with all sectors having finished in the black this past week. However, the weakest performer was the steelmakers, up just 0.03%. The week before, paper and packaging had been the worst finisher, with a paltry 0.09% gain.

The other weakest-performing sectors in the latest week were lodging (up 0.07%), consumer non-cyclical names (up 0.10%) transportation (up 0.11%) and chemicals (up 0.12%). Lodging had also been among the weakest performers the week before, with just a 0.22% return, and in fact has now been among the Bottom Five worst-performing sectors for four consecutive weeks. Transportation, as noted, had been the best-performing sector the week before, and in fact, had also been the top finisher the week before that (ended Nov. 10) and had been among the strongest names in five weeks out of the prior six, riding the renewed strength in the airline sector as Delta Air Lines Inc. continues to edge back from the brink of possible bankruptcy.

Steelers best performers for year

Despite its weak showing this past week, the steel sector continues to have the best year-to-date return, 15.92%, up from 15.83% the week before.

The chemical sector remained in second place despite its Bottom Five finish, with a return of 13.79%, up slightly from 13.77%, although Top Fiver non-ferrous metals and mining closed the gap a little to 13.31%, up from 13.15%.

Other sectors showing double-digit year-to-date strength included consumer non-durables, rising to 11.74% from 11.45% the week before; industrials, which firmed to 11.51% from 11.35%; consumer non-cyclicals, which held steady at 11.40%; energy names, which rose to 11.31% from 11.13% the week before; and healthcare, which broke into double digits with a cumulative return of 10.04%, up slightly from 9.98% the week before.

Transportation worst for year

The transportation sector's Bottom Five finish helped drop its 2004 return back into the red, at negative 0.08%, after the group had finally edged into the black the week before, when its strong gain had lifted it to 0.02% (transportation actually lost ground on a year-to-date basis from the previous week despite a small weekly rise due to a statistical quirk related to B of A's use of a Wednesday-to-Wednesday week in calculating the index because of the Thanksgiving holiday break).

No other industry sector shows a loss for the year to date.

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