B of A High Yield Broad Market Index up 0.34%, year-to-date return grows to 1.08%

By Paul Deckelman

New York, Feb. 22 - The Banc of America Securities High Yield Broad Market Index made it four straight weeks of gains as it rose by 0.34% in the week ended Feb. 17, on top of the 0.53% advance seen the week before. Its year-to-date return grew to 1.08% from 0.73% the week before.

The four-week winning streak seems to have reversed the negative momentum seen over three weeks at the vary start of the year, reverting to the largely positive trend that dominated most of 2004, all the way back to late May, and which had included the last four weeks of last year. The index ended 2004 up 11.01%.

The index's spread over Treasuries narrowed to 323 basis points from 337 basis points the week before, while its yield to worst decreased to 6.94% from 6.97% the week before.

Large Caps up 0.39% in week

The more narrowly focused High Yield Large Cap Index continued to follow the same pattern as the HY Broad Market Index, posting a fourth consecutive weekly gain and increasing its year-to-date showing. It was up 0.39% in the week ended Thursday, on top of the 0.54% advance seen in the week ended Feb. 10.

As with the HY Broad Market Index, those gains ended a streak of three straight negative weeks going back to the beginning of the year. On a cumulative basis, Large Cap has now returned 1.02% in 2005 so far, up from 0.63% the week before. The Large Cap Index had gained 10.93% in 2004.

Large Cap's spread over Treasuries in the most recent week fell to 205 basis points from 322 basis points, while its yield to worst went down to 6.80% from 6.85% previously.

Banc of America Securities did not formally publish its weekly indexes, due to the abbreviated session on Friday, ahead of the Presidents Day holiday that closed U.S. financial markets on Monday, but it made its raw data available to Prospect News.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,695 issues of $100 million or more, down from 1,701 the week before, and the overall market value of the issues declined to $550.1 billion, from $551.3 billion the previous week. The High Yield Large Cap Index, representing the most liquid portion of the high-yield world, in the meantime, tracked 616 issues of $300 million or more, down from 617 the week before, while total market value increased slightly to $339.8 billion from $339.4 billion. Banc of America sees both as reliable proxies for the $750 billion high-yield universe.

Middle tier credits outperform

On a credit-quality basis, the middle of the three credit tiers into which Banc of America divides its index - those issues rated BB-, B+ and B, making up 45.05% of the index - had the best return in the most recent week, followed by the lowest tier - those issues rated B- and below, accounting for 37.11% of the index - which returned 0.31%. Bringing up the rear was the top credit tier - those issues rated BB+ and BB, comprising 17.84% of the index - which rose 0.19%.

That broke a string of five consecutive weeks in which the top tier had also turned in the top performance, including the week ended Feb. 10, when the top tier had returned 0.67%, followed by the middle tier, at 0.56%, and then the bottom tier, at 0.44%.

The recent emergence of the top tier, up until this past week, and the relatively weak showings lately by the bottom tier, had represented a change from the previous pattern, which throughout November, December and into early January had seen the lowest tier as the best performer for four weeks in a row, five weeks out of six and nine weeks out of 10.

Twenty-one out of 23 of the industry sectors into which Banc of America divides its high-yield universe had positive returns this past week, following two straight weeks in which all 23 were on the upside. That's a continuation of the recent return to the pattern seen during the index's surge in the latter part of 2004, when either all or almost all of the industry sectors had positive returns most weeks. In the first few weeks of this year, that trend had been broken, but now appears to have been resumed.

Technology tops in week

Technology names returned 0.83% in the most recent week, the best showing in the index, taking over from finance, which had been the top sector in the week ended Feb. 10, with a 1.60% return. Their top performance this past week represents a reversal of the recent trend of weakness for the tech names, which had been among the weakest finishers the previous week, with a relatively small 0.37% gain, for its second straight week among the Bottom Five worst-performing sectors, and its third week there out of the previous four.

The utilities sector (up 0.56%) was the second-strongest group in the most recent week. It was the third week in the last four that utilities had been among the Top Five best finishers in those weeks.

The latest week's Top Five list was filled out by gaming (up 0.54%), cable/DBS operators (up 0.48%), and consumer non-durables companies (up 0.45%). It was the second straight week in the Top Five for the consumer non-durables names, which were up 0.82% in the week ended Feb. 10. Cable/DBS, however, had been in the Bottom Five that previous week, with a relatively small 0.17% gain.

Entertainment worst in week

On the downside, only two sectors were actually in the red in the latest week - entertainment (down 0.36%) and transportation (down 0.10%). That's a reversal for the transportation names, which had been in the Top Five for the two previous weeks, including their 1.23% return in the week ended Feb. 10. It may also be a reversion to the pattern of weakness that the group - laden with the volatile bonds of the troubled airline industry - had been showing at the very end of 2004 and the beginning of 2005 - before its recent gains - when it was among the Bottom Five in five weeks out of six.

Advertising-dependent media had been the weakest performer in the Feb. 10 week, when it was up a minuscule 0.09%.

The Bottom Five list was filled out in the week ended Feb. 17 with sectors having much smaller gains than their peers. These included consumer durables (up 0.05%), consumer non-cyclicals (up 0.08%) and paper and packaging (up 0.09%). Consumer non-durables have now been among the Bottom Five in two weeks out of the last three.

Transportation worst for year

On a year-to-date basis, transportation's loss and placement in the Bottom Five widened its cumulative loss to 2.89% from 2.79% the week before, clearly still the worst performer of 2005 so far.

Entertainment, with the largest loss on the week, became the only other industry sector in the red year to date, deteriorating to a 0.14% loss from a 0.22% 2005 profit the previous week. Entertainment replaced cable/DBS, which swung from an 0.31% cumulative deficit the week before to a 0.17% gain in the most recent week, helped by its Top Five showing.

Finance tops for year

On the upside, finance increased its year-to-date return to 3.27% from 2.82% the week before. PCS/cellular operators were second, with a 3.03% 2005 return so far, up from 2.66% the week before.

The wireline telecommunications sector's return increased to 2.08% from 1.68%.

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