B of A High Yield Broad Market Index off 0.07%, year-to-date return slips to 1.17%

By Paul Deckelman

New York, March 7 - The Banc of America Securities High Yield Broad Market Index lost 0.07% in the week ended March 3, breaking a string of five consecutive weekly advances, including the 0.16% gain seen the previous week. Its year-to-date return declined to 1.17% from 1.24% the week before.

The five-week winning streak seemed to have reversed the negative momentum seen over three weeks at the start of the year, reverting to the largely positive trend that dominated most of 2004 and included the last four weeks of last year. The index ended 2004 up 11.01%.

Despite the decline, the index's spread over Treasuries continued to narrow to 306 basis points from 311 basis points the week before, although its yield to worst widened out to 6.98% from 6.93% the week before.

Large Caps lose 0.14%

The more narrowly focused High Yield Large Cap Index continued to follow the same pattern as the HY Broad Market Index, showing a loss of 0.14% in the week to March 3, its first downturn after five straight weeks of gains, including the 0.14% return in the week ended Feb. 24. Its year-to-date showing accordingly declined to 1.02%, down from 1.16% the week before.

The Large Cap Index gained 10.93% in 2004.

Large Cap's spread over Treasuries in the most recent week fell to 290 basis points from 293 basis points, while its yield to worst increased to 6.85% from 6.79% previously.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,695 issues of $100 million or more, unchanged from the week before, and the overall market value of the issues decreased to $550.3 billion from $551.6 billion the previous week.

The High Yield Large Cap Index, representing the most liquid portion of the high-yield world, meantime tracked 613 issues of $300 million or more, down from 617 the week before, while total market value fell to $338.6 billion from $341.6 billion. B of A sees both as reliable proxies for the $750 billion high-yield universe.

Middle tiers outperform

On a credit-quality basis, the middle of the three credit tiers into which B of A divides its index - those issues rated BB-, B+ and B, making up 45.02% of the index - had the best return in the most recent week, and the only positive return, of 0.01%. This was followed by the lowest tier - those issues rated B- and below, accounting for 36.97% of the index - which lost 0.11%. Bringing up the rear was the top credit tier - those issues rated BB+ and BB, comprising 18.01% of the index - which fell 0.19%.

It was the third consecutive week the tiers finished in that order, with the middle tier returning 0.22% in the week ended Feb. 24, followed by the bottom tier at 0.19% and finally the top tier, which fell 0.16%. That three-week run broke the previous pattern of five consecutive weeks in which the top tier had turned in the top performance.

B of A analysts noted the continued spread tightening, even in the face of the lower return, and also noted that new-issue supply had "remained steady" at $2.1 billion total from seven issuers in the week through Thursday. This was something of a gain from the previous week, which was shortened by the Presidents Day holiday.

The analysts also pointed out that investors pulled $96 million of cash out of high-yield mutual funds during the week ended March 3, bringing the year-to-date total outflow from these weekly reporting funds to $1.4 billion.

Healthcare biggest loser

Only 11 out of the 23 industry sectors into which B of A divides its high-yield universe had positive returns this past week, versus 12 decliners. That was a reversal from the previous week, during which 18 of the 23 were in the black and five in the red, a continuation of the recent return to the pattern seen during the index's surge in the latter part of 2004.

Healthcare had the biggest loss on the week at 0.90%, presumably connected with the sudden drop in the bonds of Elan Corp. after the pharmaceuticals maker announced that it was pulling its joint-venture drug Tysabri off the market after one patient taking it died of a rare condition and a second also came down with symptoms of the same potentially fatal ailment. In the previous week, transportation had been the worst performing sector, losing 0.71%.

The transportation group was still among the Bottom Five worst performing groups in the most recent week, with a 0.22% loss. It was the group's third straight week there, including its status as single worst performer the two previous weeks.

Cable/DBS operators (down 0.65%), consumer durables companies (down 0.57%) and PCS/cellular providers (down 0.33%) rounded out the Bottom Five in the most recent week. It was a sharp turnaround for cable/DBS, which ended the week to Feb. 24 as the single best performer with a 0.81% gain. That had been its second straight week among the Top Five best performing sectors in the index. It was also a reversal for PCS/cellular, which had also been in the Top Five the week before, with a 0.69% gain. Consumer durables, on the other hand, have now been in Bottom Five for three weeks running.

Utilities tops for week

On the upside, utilities replaced cable/DBS as the strongest performers this past week, up 0.51%. It was a rebound for the utilities grouping, which was in the Bottom Five the week before when it lost 0.02%, but which has now been among the top finishers in two of the last three weeks.

Technology names (up 0.26%) were the second-strongest finishers in the index this past week. Like utilities, the tech sector was rebounding from its 0.07% loss the previous week. The previous week's performance had been enough to put it among the Bottom Five, but it has now been in the Top Five for two weeks out of the last three.

Business services (up 0.18%), non-ferrous metals and mining (up 0.15%) and chemicals (up 0.12%) rounded out the latest week's Top Five. All three were in the Top Five the previous week as well, with returns of 0.38%, 0.68% and 0.32%, respectively, and business services was there in four of the last five weeks.

On a year-to-date basis, transportation's continued presence in the Bottom Five widened its cumulative loss to 3.80% from 3.58% the week before, clearly still the worst performer of 2005 so far.

Pulled down by their Bottom Five showings this past week, consumer durables and healthcare (down 0.12% and 0.06%) have joined transportation as the only sectors in the index in the red year to date.

On the upside, PCS/cellular operators' Bottom Five showing pushed the group's year-to-date return down to 3.41% from 3.75% the week before, but it managed to stay just ahead of finance, which not only failed to gain on the stumbling leader, but actually lost ground, sliding to 3.35% from 3.37% from 3.37% to 3.35%. Top Fiver business services firmed to 2.18% from an even 2% previously, while non-ferrous metals and mining moved up to 2% from 1.85% before.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.