B of A High Yield Large-Cap Index posts 8th straight gain, up 0.18%; YTD loss cut to 3.97%

By Paul Deckelman

New York, Dec. 10 - The Banc of America High Yield Large Cap Index posted its eighth consecutive gain in the week ended Thursday Dec. 5, as it rose 0.18% on the week. In the week ended Nov. 29, the index had risen 0.73% (changes in the Large Cap Index and in other Bank of America indexes are normally calculated on a Friday-to-Thursday basis, but the indexes for the prior week were delayed a day to Nov. 29 due to the Thanksgiving holiday on Thursday, Nov. 28).

The High Yield Large Cap Index's year-to-date loss narrowed to 3.97% - the lowest it has been since the week ended June 20, when the cumulative loss for the year stood at 3.19%. In the week ended Nov. 29, the year-to-date loss had stood at 4.02%. Over the past eight 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 in the most recent week to 952 basis points and 12.83%, respectively (versus 965 basis points over and 13.09% in the previous week).

The steady gains seen over the last eight 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%. 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 High Yield Broad Market Index, which includes issues of $100 million or more, meantime, continued to gain in the most recent week, firming 0.28%, and had a spread of 971 basis points and a 12.87% yield-to-worst, versus the previous week's gain of 0.66%, its 970 basis points spread and 12.96% yield-to-worst. The HY Broad Market Index's year-to-date performance improved to a 0.53% return, up from 0.33% the week before, when the cumulative measure had swung back into the black after several months of having shown a loss.

B of A's analysts noted that the credit markets in general "seemed to lose direction . . . as positive and negative economic news worked to cancel one another out, and favorable news about corporate restructuring was offset by lower corporate profit and revenue forecasts."

In the high yield sphere, they said, the market "continued to benefit from strong demand, as $600.7 million of fresh cash was poured into high yield mutual funds in the latest week." The surge in the fund-flow numbers - which are a convenient proxy for overall junk market liquidity trends - has neatly coincided with the turnaround in the Banc of America indices, as well as similar indices issued by other investment banks.

Continuing the trend seen over the last several weeks, the latest week's advance was broad- based, with 23 out of the 27 industry sectors into which B of A divides its HY Broad Market Index showing positive results and four negatives, versus a 25-2 split the week before. The analysts noted that among the losers, the transportation sector "was weighed down by United Airlines as it crept closer to bankruptcy following a slew of negative developments" (UAL eventually filed on Monday).

The transportation sector lost 3.49% in the week - the worst in the index - on the United-related developments, including the refusal of the federal airline stabilization board to give United the $1.8 billion loan guarantee it had been seeking. That caused United's 10.67% notes due 2004 and its 9% notes due 2003 to lose 19 and 21 points respectively and end at 11 and 14. United's woes helped drag down the bonds of other carriers, with Delta Air Lines' 10 3/8% notes due 2011 down seven points to end the week at 66. Air Cargo operator Atlas Air Inc.'s 10¾% notes due 2005 lost 10 points to end at 25. The transportation sector had also been the worst in the index the week before, when it lost 2.96%; the sector has been on the Bottom Five list of the worst-performing sector for five consecutive weeks.

Technology issues lost 1.63%, bringing to an end their "significant run-up" of the previous few weeks. Lucent Technologies Inc. notes lost between 2½ and four points on the week, with similar falls seen in the bonds of Nortel Networks Corp. and Amkor Technologies.

Satellite services (off 0.80%, mostly on the four-point drop in Loral Cyberstar's 10% notes due 2006); utilities (down 0.44%) and PCS/cellular operators (with a paltry 0.04% gain) rounded out the Bottom Five in the most recent week.

On the upside, international cable names showed the biggest gains as a group, up 2.97% as Telewest Communications plc's bonds rose two to three points across the board after the U.K.-based cable and broadband operator reached a £2 billion loan agreement with its lenders. Telewest's 11¼% notes due 2003 rose three points to end at 20. In the previous week, international wireline had led all comers, with a 2.73% advance.

Domestic wireline companies had the second-best showing, with a 1.58% rise, which the analysts terming its strength "broad-based." Level 3 Communications Inc. bonds were 2½ to 4½ points better after it reached an agreement to acquire substantially all of the assets of bankrupt Internet services company Genuity. Other gainers noted by the B of A analysts included Allegiance Telecom, RCN Corp. and Time Warner Telecom.

During the previous week, the domestic wireline sector had risen 1.27%, good enough to place it on the Top Five list of the best-performing sectors for the week.

Finance (up 1.24%), publishing (up 0.87%) and industrials (up 0.69%) rounded out the Top Five list for the most recent week.

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