B of A High Yield Large-Cap Index down 1.22% in week; YTD gain cut to 0.45%

By Paul Deckelman

New York, Feb. 5 - The Banc of America High Yield Large Cap Index continued to zigzag between positive and negative territory in the most recent week, falling 1.22% in the week ended Jan. 31. That continued the index's recently erratic pattern; after starting the new year on a strong note with three consecutive weeks of gains, the market measure then fell, rose the following week and now has fallen again.

The index's year-to-date gain plunged to 0.45% from 1.69% the week before.

In the most recent week, the index's spread over Treasuries narrowed to 828 basis points from 858 basis points the week before, apparently attributable to month-end re-balancing more than anything else, while its yield-to-worst declined to 12.81% from 13.10% the week before. In 2001, the index, which lost about 3% overall, posted a spread at year's end of over 900 basis points and a yield-to-worst of over 13.50%.

In the most recent week, the index tracked 353 issues with a total market valuation of $147.798 billion, down from 360 issues worth $149.154 billion in the week ended Jan. 24. 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 around $600 billion.

The worst performer among the three credit tiers into which B of A divides its index was the lowest tier - bonds rated B- and below (23.47% of the index) had a negative 3.37% return. B of A analysts opined that this was not surprising, given that the lower credit tier is where a majority of telecommunications issues reside - and most of the telecom group was getting pounded this past week, particularly the domestic wireline sector.

Next weakest was the top tier - issues rated BB+ and BB (20.11% of the Index), which eased 0.65%. The smallest loss was seen in the middle tier (issues rated BB-, B+ and B, comprising 56.41% of the index), which was off 0.48%.

The latest week's index activity was highlighted by the sharp erosion in a quartet of communications issues, which had dominated the list of the best performers the previous week. Demonstrating the volatility of the market in general and the telecom and cable segments in particular, three of the four had been among the worst finishers two weeks earlier.

The worst-performing sector in the most recent week, as noted, was domestic wireline telecom operators, which nosedived 15.96% in the week ended Jan. 31. The group was pulled down by the problems of Global Crossing Ltd., whose 9½% notes due 2009 lost nearly five points after the company's bankruptcy filing. Also weighing on the sector was the troubles of Williams Communications Group Inc., whose 10 7/8% notes lost over 15 points on the week. The week before, the domestic wireline group had shown a 1.44% gain to put it into the Top Five list of the best-performing sectors.

The worst performer the previous week had been technology, with a 1.91% loss.

Others among the worst performers in the most recent week included the international cable operators (down 4.30%, mostly on a nine-point drop in Telewest plc's bonds); PCS/cellular telecom companies, down 2.51% on weakness in American Tower and Nextel Communications Inc. bonds; publishing (down 1.59%) and business services (off 1.55%).

In the previous week, the international cablers had been the strongest performers of all, up 3.78%; publishing and PCS/cellular had also been among the Top Five, with returns of 1.65% and 1.52%, respectively.

On the upside in the most recent week, finance issues were the top finishers, up 2.54% as Conseco Inc.'s bonds firmed on news the Carmel, Ind.-based insurer had begun a tender offer for its outstanding 10.25% senior subordinated notes due June 1. As noted, international cable issues had held the top spot the week before.

Entertainment issues were up 1.88%, second-best in the week ended Jan. 31, as Royal Caribbean Cruises' 8.75% notes due 2011 were up nearly five points to lead a general firming in the leisure sector. Chemicals (up 1.33% on strength in Lyondell Chemical Co. paper), satellite services (up 1.01%) and paper and packaging issues (up 0.97%) rounded out the Top Five best performers; the week before, the chemicals group had been among the Bottom Five, with a 0.67% loss for the week.

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