B of A High Yield Broad Market Index off 0.04%; down 0.11% year to date

By Paul Deckelman

New York, Jan. 10 - The Banc of America Securities High Yield Broad Market Index started 2005 on the wrong foot, posting a 0.04% loss for the week ended Thursday (Jan. 6). That broke a streak of four straight weeks of gains, including the 0.12% return in the previous week, ended Dec. 30. Even though the first week of the year started on a down note, the index has still risen in five weeks out of the last seven and nine weeks out of the last 11, and, looking at a longer time frame, in 19 weeks out of the last 23, and in 28 weeks out of the last 34, an overwhelmingly positive stretch dating back to late May, when it began to bounce strongly back from a prolonged negative streak which had put it into the red during much of the first part of 2004.

For the year so far, the index is off 0.11%, in contrast to the final week of 2004, when the year-to-date figure showed an 11.01% gain (the 2005 year-to-date loss is slightly larger than the first week's loss because the index week normally ends on a Thursday; the abbreviated pre-holiday session on Friday, Dec. 31 is considered part of the most recent week on that basis, but is not counted in calculating the 2005 year-to-date loss so far).

The index's spread over Treasuries was 338 basis points, an improvement from 340 bps the week before, while its yield-to-worst increased slightly to 7% even, from 6.96% the week before.

The more narrowly focused High Yield Large Cap Index continued to follow the same pattern as the HY Broad Market Index, showing a small loss - 0.12% - after four straight weeks of gains including the previous week's 0.14% return. The total loss for the year so far is 0.20%. The Large Cap Index ended 2004 up 10.93%. Large Cap's spread over Treasuries tightened to 323 basis points from 324 bps the week before, while its yield-to-worst increased to 6.90% from 6.85% previously.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,682 issues of $100 million or more, up from 1,662 the week before, as the overall market value of the issues increased to $547.6 billion from $541.2 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, up from 603 the week before, and total market value rose to $338.2 billion from $333.7 billion. B of A sees both as reliable proxies for the $750 billion high-yield universe.

Lowest credits perform best

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 38.39% of the index - had the best showing, and the only one in positive territory, returning 0.01%. Just behind that was the topmost tier (those issues rated BB+ and BB, comprising 16.84% of the index), which lost 0.01%. Lagging behind was the middle tier - those issues rated BB-, B+ and B, making up 44.77% of the index - which was off 0.10%. The order of finish broke a three-week string in which the lower tier led the way, followed by the middle tier and then the upper tier - in the week ended Dec. 30, the lower tier had returned 0.21%, followed by the middle tier at 0.10%, and then the top tier at minus 0.05%. Even so, it still marked the fourth week in a row, the fifth week in the last six and the ninth week in the last 10 in which the lowest tier was on top.

Just 11 out of the 23 industry sectors into which B of A divides its high-yield universe had positive returns in the first week of the new year with 12 losers, a turnaround from the recent pattern of broad-based strength, including the week ended Dec. 30, when 18 sectors had gained and just five had been on the downside.

In the latest week, the recently robust transportation sector lost an index-worst 0.83% - the second week in the last three in which the group, heavy with volatile airline bonds, had posted the largest loss. Even so, transportation's amazing late-in-the-year rebound from sharp losses earlier in 2004 still has made it the best performing sector in six weeks out of the last nine, including the week ended Dec. 30, when it was up 0.41%. The transportation names had finished among the Top Five best finishing sector in nine weeks out of the past 13. In the week ended Dec. 30, the steel sector had been the worst performing group, down 0.12%.

Utilities were down 0.72% in the most recent week, while technology (down 0.56%), gaming (down 0.23%) and steel (down 0.15%) rounded out the latest week's Bottom Five list of the worst sectors. The week before, utilities had been among the Top Five for a second straight week, up 0.39%, although steel, as noted, had been the worst finisher. The steelers - the strongest group of all for the full 2004 year - have now been among the worst finishers in three weeks of the last four.

Cellular top sector

On the upside, PCS/cellular names jumped and index-best 0.79%, as wireless credits were boosted by reports of merger talks between investment-grade Alltel Corp. and high-yield issuer Western Wireless Corp. - reports borne out by Monday's merger announcement involving the two rural cellular service operators. The previous week, as noted, transportation had been the leading sector.

Advertising-dependent media (up 0.36%) was the second strongest finisher in the most recent week, with the Top Five list rounded out by paper and packaging (up 0.34%), finance (up 0.33%) and business services (up 0.31%). The week before, paper and packaging had been among the losers, down 0.02%.

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