B of A High Yield Large-Cap Index rolls to 6th straight gain, jumps 3.32%

By Paul Deckelman

New York, Nov. 26 - The Banc of America High Yield Large Cap Index posted its sixth consecutive gain in the week ended Thursday Nov. 21 and the second gain of more than three full percentage points in three weeks, as it zoomed 3.32% on the week. That gain followed the 0.76% advance seen in the week ended Nov. 14 - which had followed a 3.34% jump in the week ended Nov. 7.

The High Yield Large Cap Index's year-to-date loss narrowed sharply to 5.22% - the lowest it's been since the week ended June 20, when the cumulative loss for the year stood at 3.19%. Over the past six weeks, the year-to-date loss has sharply receded from its peak cumulative loss for the year, the negative 15.68% return recorded in the week ended Oct. 10.

The index's spread over Treasuries and yield-to-worst both continued to narrow markedly in the most recent week to 977 basis points and 13.14%, (versus 1,065 basis points over and 13.89% in the previous week). It was the first time that the spread for the whole index has been below 1,000 basis points over Treasuries - the traditional junk bond market measure for calling an issue, a sector, or, in this case, a whole index, distressed - since the week ended July 18, when the spread stood at 939 basis points over.

The big gains seen in two of the last three weeks have gone a big way toward bringing the index's performance for the year more closely into line with its showing at the end of 2001, when the B of A market measure suffered an approximate 3% loss for the full year. The spread at the end of 2001 was somewhat over 900 basis points off Treasuries and its year-end yield-to-worst was above 13.50%.

In the week ended Thursday, the index tracked 377 issues with a total market value of $158.118 billion, versus 380 issues worth $154.202 billion the week before. Banc of America sees the index, which tracks issues of $300 million and over, as a reliable barometer of trends in the overall high yield market of over $500 billion.

The bank's broader high yield index, which includes issues of $100 million or more, meantime tracked 1,355 issues having a collective market value of $309.225 billion in the most recent week, versus 1,365 issues worth $304.727 billion the week before.

The High Yield Broad Market Index, just like the Large Cap measure, was up solidly in the week ended Nov. 21, posting a 2.37% gain on the week, and had a spread of 985 basis points and a 13.06% yield-to-worst, versus the previous week's gain of 0.67%, its 1,072 basis points spread and 13.80% yield-to-worst. The HY Broad Market Index's year-to-date loss was sliced to 0.77% from 3.06% the week before.

Continuing the trend seen over the last several weeks, the latest week's advance was broad-based - so broad-based, in fact, that all 27 of the industry sectors into which B of A divides its HY Broad Market Index posted gains, with not a single grouping actually in the red. In the week ended Nov. 14, 24 of the 27 had positive returns.

Of the three credit tiers into which B of A divides the index, the bottom tier - bonds rated B- and below, making up 35.092% of the index, including many of the rebounding telecom and cable issues - turned in the strongest performance in the latest week, up 3.42%. Next was the big middle credit tier (issues rated BB-, B+ and B, comprising 49.86% of the index), with a 2.03% return on the week, while the top credit tier (issues rated BB+ and BB, making up 15.04% of the index) was up 1.15%. It was the second consecutive week the tiers finished in this order.

B of A analysts noted that the credit markets "rallied throughout the week, as the lowest credit rated and longest duration sectors significantly outperformed" the rest of the market. High yield issues, they said, were "buoyed by a strong technical environment" as they continued to post strong total returns and shrink its year-to-date losses.

The analysts noted that high-yield mutual funds reported net inflows for a sixth straight week, coinciding with the B of A indexes' recent turnaround. They also pointed out that the VIX Index - a measure of equity market volatility that acts as a proxy for investor sentiment - improved to around 27 from 39 a month ago.

Further, the B of A report noted, "while the [overall] high yield market still remains in negative territory on a year-to-date basis," that segment of the market that excludes telecommunications credits, as characterized by B of A's High Yield Broad Market Ex-Telecom Subindex, is now back in the black, with a 0.42% cumulative gain.

For a second consecutive week, the best-performing industry sector in the high yield universe was PCS/cellular operators, up 7.47% in the week ended Nov. 21 on a broad-based advance led by American Tower Corp., whose notes continued to rise after the company reported favorable third-quarter results earlier in the month. The communications antenna tower operator's 9 3/8% notes due 2009 traded up 12.5 points to 77. Other towers were strong as well, with Crown Castle International Inc. notes gaining 7.5 to 9.5 points after reporting third-quarter results; its 10¾% notes due 2011 gained nine points to end at 90. Nextel Communications Inc. bonds also continued to rally, as did those of Triton PCS; Nextel debt on average was up 2½ points, and its benchmark 9 3/8% notes due 2009 were up more than four points during the week. Triton PCS' bonds meantime were also up strongly, with its zero-coupon/11% notes due 2008 up 9.5 points to end at 85.

The PCS/cellular sector had also led all comers in the week ended Nov. 14, when they were up 2.82%, again paced by American Tower paper.

North American cable operators - the previous week's worst performer, with a 0.62% loss - were the second-strongest finisher in the most recent week, gaining 6.67% as Charter Communications Holdings LLC pulled the sector up; despite the St. Louis-based cabler's announcement that it would restate financial results for 2000 and 2001, as well as for this year's first and second quarter, its bellwether 8 5/8% notes due 2009 firmed nearly eight points to close at 49.5, and its other bonds were up around three points.

Technology issues (up 5.83%, largely on strength in Lucent Technologies Inc. and Nortel Networks Corp. bonds), domestic wireline telecom operators (up 5.44%) and utilities (up 3.09%) rounded out the Top Five list of best-performing sectors for the most recent week; the techs had also been in the Top Five the week before - and actually, for several weeks before that - with a 2.30% advance in the Nov.14 week.

The Bottom Five list of the weakest performing sectors was, for the first time, made up entirely of industry groups which finished the week with positive returns - just a lot smaller than those of all of the other sectors.

Energy had the "worst" showing, posting just a 0.31% return; Pioneer Natural Resources notes posted modest gains, with its 9 5/8% notes due 2010, its 6½% notes due 2008, and its 7½% notes due 2012 all firming half a point. It was the second straight week in the Bottom Five for the grouping, which had a 0.02% loss the week before; as already noted, North American cable had been the worst-performing sector the week before, easing 0.62%.

Gaming had what B of A called "a respectable" return of 0.59% for the week, but that still badly lagged the overall market. Mandalay Resorts Group's 9½% notes due 2008 edged up half a point to 110.5, seemingly unaffected by last Wednesday's announcement that the company's third-quarter earnings per share of 50 cents would be slightly below the Street's 52-cent consensus, while Park Place Entertainment's 9 3/8% notes due 2007 remained unchanged at 101.75, while Venetian Casino's 11% notes due 2010 advanced almost a point-and-a-half to close at 105.

Transportation - which had been among the Top Five for several weeks, including the previous week, with a 1.30% gain - gained 0.76% in the week ended last Thursday, lagging the market, as the six-point loss in AMR Corp.'s 9% notes due 2012 to 47 outweighed a basically unchanged performance by most other airline names.

Paper and packaging and steel, with modest gains of 0.93% and 0.97%, respectively, rounded out the Bottom Five in the most recent week.

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