B of A High Yield Large-Cap Index off 0.20%, first loss in weeks; year-to-date gain shaved to 16.82%

By Paul Deckelman

New York, May 20 - The Banc of America High Yield Large Cap Index suffered its first setback after more than a dozen weeks on the upside, easing 0.20% in the week ended Thursday (May 15). However, its year-to-date gain remained impressive at 16.82%.

The week before, the index had risen 0.31%, for a cumulative 2003 return of 17.05%.

During the latest week, the index's spread over Treasuries widened out slightly to 706 basis points from 696 basis points in the week ended May 7 while its yield-to-worst also increased marginally to 9.66% from 9.62% the week before.

The retreat in the latest week, breaking a winning streak which had extended all the way back to the end of February, coincided with a reduction in the amount of new cash coming into the market, as measured by the weekly high yield mutual fund flow statistics compiled by AMG Data Services of Arcata, Calif.

In the week ended last Wednesday (May 14), a net inflow of approximately $331 million was seen - substantial, but still well below the billion-dollar-plus inflows seen in each of the two previous weeks, and in seven weeks out of the previous 12 since late February. In two other weeks, the inflow total approached $1 billion, according to a Prospect News analysis of the AMG figures.

While the High Yield Large-Cap Index retreated slightly in the latest week, the broader Banc of America High Yield Broad Market Index managed to remain in positive territory - just barely - for a 13th consecutive week. The HY Broad Market Index edged up 0.06% in the latest week, compared with its gain of 0.46% in the week ended May 7. The year-to-date return grew slightly, to 14.52% from 14.45% previously. The Index's spread versus Treasuries was 732 basis points, down a point from the previous week, while its yield-to-worst narrowed slightly to 9.81% from 9.87%.

(The High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracks nearly 470 issues of $300 million or more having a total market value of around $232 billion. The High Yield Broad Market Index tracks about 1,510 issues of $100 million or more, having a total market value of about $413 billion. B of A sees both as reliable proxies for the approximately $700 billion high yield universe.)

B of A analysts noted that both the investment-grade and the high-yield markets saw a busy spurt of new-issue pricing ($15.65 billion in the high-grade market and $3.7 billion in junk bonds). Market observers have noted the shift of focus in high yield away from the just recently booming secondary market and toward the new-deal arena.

The bank's analysts also pointed out that in the latest week, the higher-rated bonds outperformed the rest of high yield, with the middle and lower tiers into which B of A divides its high yield universe relatively flat on the week, versus an 0.42% gain for the top-rated issues.

In the latest week, international cable operators were the best performers, with the group up 1.96%, pulled up by the notes of Ono Finance plc, whose 13% notes due 2009 gained four points to close at 56, and Telewest Communications plc, whose 9¼% notes due 2009 advanced three points to end at 23. The group had also been strong the previous week, with a 1.60% return landing it on the Top Five list of best-performing sectors.

Finance was the second-strongest industry grouping in the latest week, up 1.02% as Americredit's 9 7/8% notes due 2006 gained three points to end at 91, and LaBranche & Co.'s 12% notes due 2007 rose 3½ points to end the week at 113.

Industrials (0.88% better on the strength of Foamex LP and General Binding Corp. debt), transportation (up 0.64%) and technology (0.62% better) rounded out the Top Five.

On the downside, steel was the worst-performing sector, softening by 2.10% as AK Steel Corp.'s 7¾% notes due 2012 lost 3½ points to end at 85, and United States Steel Corp.'s 10¾% notes due 2008 also dropped 3.5 points to 105. The steelers had also been on the Bottom Five list of the weakest-performing sectors the previous week, with a 0.35% loss.

Chemical companies eased 1.06% in the latest week, as the bonds of Lyondell Chemicals lost up to 4½ points on the week.

Utilities (1.03% lower on weakness in El Paso Corp. and Mirant Corp. debt), advertising-dependent media (0.41% easier) and entertainment (down 0.20%) rounded out the Bottom Five in the latest week.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.