B of A High Yield Broad Market Index up 0.44%, year-to-date gain increases to 23.78%

By Paul Deckelman

New York, Nov. 3 - The Banc of America High Yield Broad Market Index moved up 0.44% in the week ended Thursday (Oct. 30), its 11th consecutive weekly gain. That pushed its year-to-date cumulative gain to a new peak at 23.78%. In the previous week (ended Oct. 23), the index had crept up 0.02% to 23.24%, the year's previous high point.

In the latest week, the index's spread over Treasuries narrowed to 547 basis points from 557 bps the previous week, while the yield to worst meanwhile went down to a new low for the year, at 8.49%, from 8.57%, the week before.

B of A's High Yield Large Cap Index got back on the winning track with a 0.48% return, after having suffered its first loss in many weeks the week before, when it lost 0.14%. Large Cap's year-to-date return once again hit a new peak level for the year, at 26.65%, up from 26.05% in the week ended Oct. 23. In the latest week, the spread over Treasuries narrowed to 509 basis points from 521 bps the week before, while the yield to worst declined to 8.24% from the previous week's 8.33%.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,604 issues of $100 million or more, having a total market value of over $483 billion, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 557 issues of $300 million or more having an aggregate market value of over $292 billion. B of A sees both as reliable proxies for the more than $700 billion high yield universe.

Banc of America Securities analysts characterized the week's total return as "strong" and noted even though high yield mutual funds - a key barometer of overall junk market liquidity trends - showed a very small outflow in the latest week, "the market had no problem absorbing over $3.8 billion of new issuance (from Monday through Thursday), with many of the new-issue transactions receiving favorable executions, pointing to continued strong investor demand.

On a credit basis, the highest of the three credit tiers into which B of A divides its index - representing credits rated BB and BB+ and comprising 15.20% of the index - had the best return on the week, an 0.58% gain. This was followed by the middle credit tier (those issues rated BB-, B+ and B, making up 48.68% of the index), which rose 0.42%, followed closely by the lowest tier (issues rated B- and below, accounting for 36.12% of the index), which returned 0.40% It was the second straight week in which the order of finish was highest, middle, lowest.

Advancing sectors solidly thumped decliners, with 26 of the 27 industry groups into which B of A divides its index positing positive returns, an improvement from the previous week's 17-10. The latest week's result marked a return to the pattern which had been seen for a number of weeks previously, with all or almost all of the sectors reporting positive returns.

The best-performing sector on the week was chemicals, up 1.14% as bonds of Lyondell Chemical Co. and Equistar Chemical, two of the largest issuers in the sector, were the strongest, both boosted by recent better-than-expected earnings results. Lyondell's 9 7/8% notes due 2007 and Equistar's 10 1/8% notes due 2008 both rose two points to 101 and 105, respectively. In the week ended Oct. 23, chemicals had been among the worst finishers, losing 0.34%, while technology had copped the top spot with a 1.09% return.

The tech names, in fact, continued to perform well in the latest week, returning 0.96%, second-best in the index, fueled by strength in Lucent Technologies and Amkor Technology bonds; Lucent's bonds were lifted after the company announced a three-year agreement to supply Verizon with networking systems, its 6.45% notes due 2029 rising nearly two points on the week to end at around 77.25. Amkor's 9¼% notes due 2008 gained a point and a quarter to end at around 111.25.

Steel (up 0.90% on strength in AK Steel Corp. bonds), international cable operators (0.80% better) and consumer non-durables makers (up 0.71%) rounded out the Top Five list of best-performing sectors in the latest week. International cable names had been among the Top Five in the previous week, when they returned 0.55%.

On the downside, international wireless names were the only sector in the red, down 0.47%, as Mobile Telesystems Finance SA's 9¾% notes due 2008 were quoted nearly three points lower to end the week at around 106. In the Oct. 23 week, PCS/cellular had been at the bottom of the barrel, with a 0.69% loss.

The other four names rounding out the Bottom Five list of the weakest finishers merely posted smaller-than-the-norm returns, including domestic wireline (up 0.10%), PCS/cellular (up 0.20%), energy (up 0.22%) and utilities (0.23% better). In the previous week, PCS/cellular, as noted, had been the worst finisher, while utilities were also in the Bottom Five with a 0.41% loss.

On a year-to-date basis, international wireline telecom's cumulative gain improved to 70.77% from 70.44% the week before, while second-place international wireless telecom - worst finisher in the index in the latest week - dropped to 64.65% from a 65.43% total return.

The steelmakers remained the only one of the 27 industry sectors in the red for the year-to-date, but buoyed by its Top Five performance, its cumulative loss narrowed to 1.22% from 2.10% the previous week.

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