Banc of America High Yield Broad Market Index off 0.37%, down 0.49% year to date

By Paul Deckelman

New York, Jan. 18 - The Banc of America Securities High Yield Broad Market Index continued to start the year with a plunge into negative territory, posting a 0.37% loss for the week ended Jan. 13.

It was the second straight loss for the index, following the 0.04% easing seen in the previous week ended Jan. 6. Previously, the index had been in a positive mode, having risen for four consecutive weeks as part of a pattern of mostly advances which had dated all the way back to late May of last year.

For the year so far, the index is off 0.49%, having widened out from the previous week's 0.11% year-to-date loss. The index's spread over Treasuries ballooned to 357 basis points from 338 basis points the week before, while its yield to worst increased to 7.14% from an even 7% the week before.

Banc of America Securities did not officially publish its index in the latest week, due to the abbreviated session Friday ahead of Monday's full market closure for the Martin Luther King Day legal holiday, but did make its raw data available to Prospect News.

Large Caps down 0.53% for week

The more narrowly focused High Yield Large Cap Index continued to follow the same pattern as the High Yield Broad Market Index, showing a second consecutive loss - 0.53% - on top of the small initial loss for the year of 0.12%, this after four straight weeks of gains as part of a mostly positive second half of 2004. The total loss for the year so far widened to 0.73% from 0.20% the week before.

Large Cap's spread over Treasuries rose to 346 basis points from 323 basis points, while its yield to worst also increased to 7.07% from 6.90% previously.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,685 issues of $100 million or more, up from 1,682 the week before, although the overall market value of the issues decreased to $543.9 billion from $547.6 billion the previous week.

The High Yield Large Cap Index, representing the most liquid portion of the high-yield world, in the meantime tracked 611 issues of $300 million or more, down from 613 the week before, and total market value declined to $334.2 billion from $338.2 billion. B of A sees both as reliable proxies for the $750 billion high-yield universe.

Top credit tier outperforms

On a credit-quality basis, the topmost of the three credit tiers into which B of A divides its index - those issues rated BB+ and BB, comprising 17.34% of the index - had the best return, i.e., the smallest loss, down 0.02%. That was followed by the middle credit tier (those issues rated BB-, B+ and B, making up 44.44% of the index), which was off 0.26%, with the lowest tier - those issues rated B- and below, accounting for 38.22% of the index - bringing up the rear with a 0.64% loss.

The week before, the lowest tier had been the only grouping showing a gain as it returned 0.01% - the fourth week in a row, the fifth week in the previous six and the ninth week in the prior 10 in which the lowest tier had been on top. It was followed by the topmost tier, which lost 0.01% and then the middle tier, down 0.10%.

Just one out of the 23 industry sectors into which B of A divides its high-yield universe had a positive return in the latest week, with the other 22 showing losses. That was a deterioration from the previous week, when 11 sectors had been in the black, against 12 in the red, and represents a complete reversal of the pattern that had been in effect for most of the previous weeks, when all, or nearly all, of the industry sectors had shown positive returns.

Transportation worst for week

For a second straight week, the transportation sector - which had been the most robust industry grouping for most of the last two months of 2004 - had the largest loss, tumbling 1.77%, on top of the previous week's 0.83% downturn. Besides being the second straight loss, it was third week in the last four in which the group, heavy with volatile airline bonds, had posted the largest loss.

Cable/DBS had the second-biggest loss in the most recent week, down 1.17%. Utilities (down 0.80%), wireline telecommunications operators (down 0.69%) and healthcare (down 0.60%) rounded out the Bottom Five list of the worst-performing sectors for the week. It was the second straight week in the Bottom Five for utilities - a turnaround from the previous two weeks in late December, when the sector had been among the strongest in the index.

Chemicals top sector for week

On the upside, just one industry sector - chemicals - was actually in positive territory this past week, and that was only with a small 0.06% return. In the previous week, PCS/cellular names had been the index leader, returning 0.79%. This week, the PCS/cellular operators were still in the Top Five - but it mostly consisted of sectors whose losses were merely smaller than everyone else's, in this case, 0.02%. Non-ferrous metals and mining (down 0.03%) and consumer non-durables companies and technology (each down 0.04%) rounded out the latest week's Top Five. It was in improvement for technology, which had been among the Bottom Five names the week before, with a 0.56% loss.

Transportation worst year to date

On a year-to-date basis, transportation is the biggest loser so far this year, down 2.56%, as the sector has seemingly returned to the position that it held for most of 2004, when it posted a sizable cumulative loss for most of the year; even its strong rebound in the last quarter of the year still left the sector with the smallest return of any sector in 2004, at 4.74%. Utilities, on the strength of two weeks among the Bottom Five, has a 1.55% 2005 loss so far. Cable/DBS names are down 1.16% on the year.

PCS/cellular tops for year

On the upside, the PCS/cellular sector is the strongest so far this year with a 0.75% cumulative return, followed by advertising-dependent media (up 0.24%) and this past week's strongest sector and only positive finisher, chemicals (up 0.09%).

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