Banc of America High Yield Broad Market Index down 0.03% on week, up 0.87% for year

By Paul Deckelman

New York, Jan. 24 - The Banc of America Securities High Yield Broad Market Index eased 0.03% in the week ended Jan. 19 - the first decline after eight consecutive weeks on the upside, including the 0.31% gain seen in the week ended Jan. 12.

Even including the latest week's minuscule loss, a broader strengthening trend still remains evident, with positive returns now having been seen in 11 weeks out the last 21 and in 22 weeks out of the last 33, according to a Prospect News analysis of Banc of America data.

On a year-to-date basis, the 2006 index return so far is 0.87%, down slightly from the previous week's 0.90% cumulative gain. The index ended 2005 up 2.10%.

The index's spread over Treasuries, which in the previous week had tightened to 373 basis points from 380 bps previously, widened out to 383 bps. Its yield to worst, which had previously declined marginally to 8.12% from 8.13% the week before, increased to 8.19% in the most recent week.

Large caps slide 0.06%

The more narrowly focused High Yield Large Cap Index, which generally tracks the patterns seen in the HY Broad Market Index, declined 0.06% in the week ended Jan. 19, breaking a string of five straight gains, including the 0.28% advance seen in the week ended Jan. 12. Declines have now been seen in 11 weeks out of the past 20, although the index has lately attempted to battle back from a previously decidedly negative pattern.

The HY Large Cap's 2006 year-to-date return fell to 0.94% from an even 1.00% the week before. In 2005, the large cap index finished with a 1.59% return.

Its spread over Treasuries, which in the week ended Jan. 12 had tightened to 354 bps from 360 bps the week before, widened out 10 bps in the most recent week to 364 bps. Its yield to worst, which in the previous week had held steady at 7.92%, the same as the week earlier, increased to an even 8.00% this past week.

In that latest week, the more inclusive HY Broad Market Index tracked 1,663 issues of $100 million or more, down from 1,675 the week before, while the overall market value of the index fell to $547.7 billion from $556.5 billion the previous week.

The HY Large Cap Index, measuring the most liquid portion of the high-yield world, tracked 659 issues of $300 million or more, down from 664 the week before, as the overall market value fell to $357.5 billion from $363.5 billion the previous week. Banc of America sees both indexes as reliable proxies for the about $750 billion high-yield universe.

Top credit tear even

On a credit-quality basis, the returns of the three credit tiers into which Banc of America divides its index were tightly spaced, separated by just 0.06%. The uppermost tier of the three - those issues rated BB and BB+, comprising 24.88% of the index - was the only one of the three not to show a loss, finishing unchanged. This was followed by the middle tier (issues rated BB-, B+ and B, 42.76% of the index), which finished off down 0.02%. The lowest tier - issues rated B- and below, 32.36% f the index - lagged slightly behind, with a 0.06% loss.

It was the second consecutive week in which the three tiers finished in that order, and the third straight week in which the top tier had led the other two, as it tries to break out of its recent pattern of weakness. Even with the three straight index-best finishes, the top tier has still ended up at the bottom of the pile in six weeks out of the past 11 and seven weeks out of the past 13.

In the week ended Jan. 12, the upper tier returned 0.39%, the middle tier 0.31% and the lower tier 0.22%.

Consumer durables in cellar

Banc of America analysts noted that the consumer durables sector made the worst showing of the 23 industry sectors into which Banc of America divides its high-yield universe, dragged down by the bonds of automotive-related companies following "disappointing" results from Dana Corp.

That was particularly bad for the overall index because consumer durables make up 14.19% of the index - the single largest grouping.

By way of contrast, the analysts noted that even though the transportation index, heavy with the bonds of the airline companies, was among the top losers and dragged down by high oil prices, which point to future higher jet fuel costs, "the sector's minute weightage in the index (0.87%) shielded the index from a larger fall."

The analysts noted that during the week, three issuers tapped the primary market for $1.975 billion as of the close of business on Jan. 19, including one deal for EchoStar DBS Corp., which was upsized to $1.5 billion from $1 billion.

On the demand side, the analysts also noted that net outflows from weekly reporting high-yield mutual funds, as compiled by AMG Data Services, totaled $129 million in the week ended Jan. 18, following the previous week's $6.45 million outflow. That brought the cumulative outflow for the year so far to $127 million.

16 sectors stay in black

Although the index had a slightly negative overall return, 16 of the 23 industry sectors showed positive returns in the most recent week, with seven in negative territory - the second consecutive week for a 16-7 split and the ninth straight week in which the positive/negative sector breakdown has been strongly positive.

The biggest loser by far was the consumer durables grouping, which, as noted, was dragged down by weakness among the automotive-related bonds following Dana's poor numbers. The sector lost 0.62% in going from first to worst - in the previous two weeks it had been the best performer of the 23 sectors, recording index-leading gains of 1.45% in the week ended Jan. 12 and 1.67% the week ended Jan. 5.

Those two weeks of strength to start off 2006 seem to have been something of an anomaly; the latest loss is more in keeping with the pattern of weakness seen through most of November and December. All told, the consumer durables have now been the worst-performing sector in three weeks out of the last five, and the group has now been among the bottom five worst-performing sectors in the index for nine weeks out of the past 13. In the latest week, consumer durables took over as the worst finisher from publishing, which had been the cellar dweller in the week ended Jan. 12 with a 0.27% loss that week.

Transportation (down 0.29%), paper and packaging (down 0.24%) cable/DBS operators (off 0.09%) and steel (0.06% lower) rounded out the latest week's bottom five list.

It was the second straight week in the bottom five for both paper and packaging and cable/DBS, which had made it there the previous week with losses of 0.04% and 0.06%, respectively, in the previous week. Paper and packaging has now been in the bottom five in five weeks out of the last seven. But landing among the bottom five was a reversal for transportation and for steel, which both were among the index's top five best performing sectors in the Jan. 12 week, when they went up 0.88% and 0.30%, respectively. Steel, however, has now been in the bottom five in two weeks out of the last three.

On the upside, utilities posted a 0.31% gain in the most recent week to take over the top spot from consumer durables, which, as noted, held that coveted position for the two previous weeks. The utilities were also among the top five in the Jan 12 week, when they rose 0.33%, and they have now been in the top five in five weeks out of the past six - three of them with the best finish in the index.

Finance (up 0.26%), entertainment (up 0.24%), gaming (up 0.20%) and the business services and the wireline telecommunications sectors (each up 0.15%) rounded out the latest week's top five. Finance has now been among the top five in four weeks out of the past five, and entertainment has been there in three weeks out of the last five.

On a year-to-date basis, the consumer durables sector - despite its index-worst showing on the week - remained the best performer, although its 2006 return fell to 2.40% from 3.05% the week before.

Utilities rode its index-best showing on the week into second place, as its cumulative return grew to 1.16% from 0.85% previously, allowing it to pass bottom-fiver transportation, which fell to 0.90% from 1.19%.

On the downside, no sectors are in negative territory yet, but health care continued to show the weakest cumulative return so far at 0.21%, although that was up slightly from 0.19% the week before. It was followed by ad-dependent media, which had its return improved a bit to 0.29% from 0.24%.

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