B of A High Yield Broad Market Index down 0.05%, year-to-date return slips to 2.45%

By Paul Deckelman

New York, Sept. 6 - The Banc of America Securities High Yield Broad Market Index eased 0.05% in the week ended Thursday, Sept. 1, an erosion from the 0.44% gain seen in the previous week (ended Aug. 25). Even so, the index has still recently shown gains in two weeks out of the last three, in 10 weeks out of the last 12 and 11 weeks out of the last 14.

On a year-to-date basis, the index's return declined slightly to 2.45%, after having moved up the previous week from 2.05% to 2.50%, its high point for the year so far.

The index's spread over Treasuries, which in the previous week had tightened a bit to 359 basis points from 362 bps the week before, ballooned back out to 384 bps, mostly due to strength in the governments market. Its yield-to-worst - which had previously narrowed to 7.64% from 7.71% - went back out to 7.69% in the latest week.

The more narrowly focused High Yield Large Cap Index, which generally tracks the patterns seen in the HY Broad Market Index, likewise retreated 0.12% in the week ended Thursday after having risen in each of the two previous weeks, including the 0.53% gain in the week ended Aug. 25. The year-to-date return, which had previously jumped to its high point of the year, at 2.33%, from 1.80% the week before, dropped back to 2.21% in the week ended Thursday. The spread over Treasuries, which in the week ended Aug. 25 had fallen to 344 basis points from 349 bps previously, widened drastically in the most recent week to 371 bps, while its yield-to-worst rose to 7.57%, after having fallen in the Aug. 25 week to 7.51% from 7.59%.

Banc of America Securities did not formally publish its weekly indexes as usual on Friday due to the early market close (2 p.m. ET) ahead of the Labor Day holiday, which also closed U.S. financial markets on Monday; however, the data was made available to Prospect News by B of A.

In the latest week, the more inclusive HY Broad Market Index tracked 1,739 issues of $100 million or more, down from 1,741 the week before, while the overall market value of the index fell to $593.3 billion from $595.5 billion the previous week.

The more narrowly focused HY Large Cap Index, measuring the most liquid portion of the high yield world, tracked 672 issues of $300 million or more, up from 670 the week before, although the overall market value of the index retreated to $381.4 billion, down from the previous week's $382.3 billion. B of A sees both indexes as reliable proxies for the $750 billion high yield universe.

Middle-tier credits show biggest gain

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 39.46% of the index - had the best return, up 0.02%, followed by the bottommost tier (those issues rated B- and below, accounting for 33.42% of the index), which lost 0.09%. Bringing up the rear was the topmost tier-those issues rated BB and BB+, comprising 27.12%, which lost 0.17%.

That broke the recent pattern, which had seen the middle tier on the bottom for the previous two weeks, and the bottom tier on top in six weeks out of the prior seven. In the week ended Aug. 25, the bottom tier rose 0.58%, followed by the top tier, which was up 0.45%, and then the middle tier, up 0.32%.

In the most recent week, 14 of the 23 industry sectors into which B of A divides its high yield universe had positive returns, versus nine groups that finished on the downside. While that is an erosion from the previous two weeks, when all 23 sectors were in the black and none in the red, it still fits generally into the pattern now seen in 14 weeks out of the last 15 - all weeks in that stretch except for Aug. 11 - during which a clear majority of sectors had shown positive returns in each of those weeks. Before that index upturn, which began in the week ended May 26, all or almost all, of the sectors had shown losses in most weeks, dating back into mid-March.

Finance, entertainment ranked first for week

Finance and entertainment were tied for the best performance this past week, each returning 0.31%. They displaced the previous holder of the top spot, cable/DBS operators, who had shown a robust 1.52% gain in the week ended Aug. 25. Entertainment has now been among the Top Five best finishers in the index in two weeks out of the past three, and finance has been there in two weeks out of the past four.

Energy (up 0.28%), advertising-dependent media (up 0.25%) and consumer non-cyclical companies (up 0.23%) rounded out the latest week's Top Five. Ad-dependent media had been the absolute weakest finisher in the week ended Aug. 25, when all sectors finished in the black and ad-dependent media had the smallest gain of any of them, 0.08%. But the week before that (ended Aug. 18), it had been tied for the final spot in the Top Five with non-ferrous metals and mining; each had been up 0.52%.

Transportation has biggest loss

On the downside, transportation's recent show of strength - which saw the group finish in the Top Five over the prior two weeks, including its 1.32% gain in the Aug. 25 index - came to an abrupt halt last week, as the sector nosedived an index-worst 0.82%, pulled down by energy worries, particularly for strikebound Northwest Airlines Corp. and for Delta Air Lines Inc., both of which are seen flirting with bankruptcy.

Transportation replaced the previous week's cellar dweller, which was ad-dependent media, as already noted. Transportation thus returns to its more familiar role, as the sector - dragged earthward by the volatile bonds of the troubled airline industry - had over a number of recent weeks (except for the weeks ended Aug. 18 and Aug. 25) been either the single worst-performing sector, or was among the worst found in the Index's Bottom Five weakest finishers for those weeks.

Consumer durables (down 0.70%), cable/DBS operators (off 0.56%), gaming (down 0.29%) and chemicals and publishing (each off 0.13%) rounded out the latest week's Bottom Five list. As noted, the cablers had been the strongest finisher the week before, with the group's 1.52% return, while publishing had also been among the Top Five, with a 0.49% gain. However, publishing, and gaming as well, have now been in the Bottom Five in two weeks out of the last three.

On a year-to-date basis, the transportation sector's return to its usual form widened its 2005 cumulative loss to 12.72% from an even 12% previously, solidifying its unenviable distinction as by far the biggest loser.

Fellow Bottom Five finisher consumer durables' 2005 deficit meanwhile rose to 2.28% from 1.58% the previous week, while paper and packaging's loss declined slightly, to 0.20% from 0.25%. No other sectors were in the red on a year-to-date basis, as the steel sector continued its recent trend of improvement and moved back into the black, up 0.13% on the year, from negative 0.03% the previous week.

PCS/cellular still top

On the upside, PCS/cellular's index-best year-to-date return pushed up to 8.61% from 8.50% previously, while finance, aided by its first-place tie as the week's best performer, improved to 6.60% from 6.27% previously. Business services fell to 4.66% from 4.68%, but Bottom Fiver publishing's total return fell more, to 4.62% from 4.75%. Wireline telecommunications' 2005 return rose to 4.27% from 4.12%.

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