B of A High Yield Broad Market Index up 1.18%, year-to-date gain increases to 19.16%

By Paul Deckelman

New York, Sept. 9 - The Banc of America High Yield Broad Market Index rose 1.18% in the week ended Thursday Sept. 4, its third straight weekly gain, bringing the cumulative 2003 return to its highest point for the year so far at 19.16%. The spread over Treasuries dropped to 587 basis points and the yield to worst fell to 9.15%, the narrowest levels of the year.

In the previous week, ended Aug. 28, the index had gained 1.07%, and the year-to-date return was 17.78%, with a spread of 614 bps and a yield-to-worst of 9.42%. B of A did not officially publish its weekly high yield indexes that week due to the traditionally low volume of pre-Labor Day market activity and the abbreviated pre-holiday session on Friday of that week.

B of A's High Yield Large Cap Index also continued to streak upward in the latest week, with a return of 1.31%, pushing the year-to-date total up to 21.79%, versus the previous week's 1.28% gain and 20.22% cumulative total. In the latest week, the spread over Treasuries was 552 basis points and the yield to worst was 18.93%, versus the previous week's 579 bps and 9.19%, respectively.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,570 issues of $100 million or more, having a total market value of more than $453 billion, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 520 issues of $300 million or more, having a total market value of more than $266 billion. B of A sees both as reliable proxies for the approximately $700 billion high yield universe.

The upturn in the indexes over the past several weeks coincides with a return of liquidity to the high-yield market, which this past week saw a $1.14 billion net inflow to junk bond mutual funds - a key barometer of overall market liquidity - on top of the previous week's even more stunning record inflow of nearly $3.3 billion.

B of A analysts, citing the strong inflows, noted that "the return of high yield demand and the lack of new issue supply both helped lift the secondary market" in the latest week. As a result, the HY Broad Market Index "not only recovered all the losses it incurred between mid-July and mid-August, but also saw its YTD total return reach a new high of 19.16% as of Sept. 4."

On a credit basis, the lowest of the three credit tiers into which B of A divides its index - representing credits rated B- and below and comprising 36.09% of the index - had the best return in the most recent week, up 1.44%. It was followed by the middle credit tier (those issues rated BB-, B+ and B, making up 48.01% of the index), which returned 1.07%. Bringing up the rear was the top credit tier, of issues rated BB+ and BB (15.90% of the index), which returned 0.92%.

The analysts further noted that "the strength of the market was shared" by all 27 of the industry sectors into which Banc of America Securities divides its high yield universe - all had positive total returns for the latest week.

The best- performing sector in the latest week was transportation, "driven by strength in airline names Delta Air Lines and Northwest Airlines." The sector turned skyward by 3.51%. Delta's 8.3% notes due 2029 rose six points to end at 67.5, while Northwest's 9 7/8% notes due 2007 were also up six points to close at 78.5. Delta bonds gained between four and nine points on the week, on average, while Northwest's paper was up in a range of five-to-seven points.

North American cable operators were the second-best performers during the week, up 2.31%, with strength seen across the board, moved by Charter Communications, which sold $765 million of non-core cable assets, causing its benchmark 9 5/8% notes due 2009 to gain 2½ points, to 78.5.

Satellite services (up 1.86%, mostly on strength in PanAmSat Corp. debt), finance (up 1.84%) and steel companies (1.68% better) rounded out the Top Five list of the best-performing sectors in the most recent week.

On the downside - this past week there was no downside, with all of the industry sectors finishing in the black. The Bottom Five list of the weakest performers was made up of those sectors whose gains merely lagged those of the rest of the index, with energy the smallest at 0.69%, followed by non-ferrous metals and mining (0.72%), international cable (0.77%), consumer durables (0.81%) and industrials (0.86%).

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