B of A High Yield Large-Cap Index off 0.99% in week; YTD loss widens to 2.49%

By Paul Deckelman

New York, Dec. 17 - The Banc of America High Yield Large Cap Index was off for a third consecutive week, retreating 0.99% in the week ended Dec. 12. That came on the heels of a dip of 0.12% in the week ended Dec. 5. Those losses (plus the 0.11% easing the week before), had broken a string of seven consecutive weeks in October and most of November in which the index had showed gains - some of them sizable - as the junk bond market recovered from the plunge in the weeks immediately following the Sept. 11 terrorist attacks on the U.S.

The index's cumulative loss for the year widened out in the week ended Dec. 12 to 2.49% from 1.51% the previous week. The year-to-date loss, which had ballooned following the terrorist assaults, had been shaved all the way down to 1.29% earlier in November, before the latest retrenchment began.

In the most recent week, the index's spread over Treasuries rose slightly to 888 basis points from 884 bps the previous week, and its yield-to-worst widened to 13.45% from 13.35% the week before; the relatively small increase in the spread, coming as it did in a week in which the index posted a measurable loss, reflects the even sharper losses seen in the Treasury market, which has been reeling recently as interest rates have fallen (aided by the latest Federal Reserve rate cut) and stocks have strengthened, drawing investment dollars out of the fixed-income markets in general and Treasuries in particular.

In the most recent week, the index tracked 347 issues with a total market valuation of $140.567 billion, up from 342 issues valued at $138.066 billion. 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 nearly $600 billion.

The worst performer among the three credit tiers into which B of A divides its index was the middle tier (issues rated BB-, B+ and B, comprising 54.56% of the index), which was down 1.37%. The smallest loss was turned in by the top tier - issues rated BB+ and BB (20.71% of the index), which eased 0.44%. The lowest tier - bonds rated B- and below (24.73% of the index) fell 0.68%.

In the latest week, international wireless issues jumped an index-best 5.11%, on the strength of a four-point rise in Millicom International Cellular's zero-coupon/13.5% notes due 2006. In the previous week, consumer non-durable goods companies were the best performers, with a 1.72% gain.

Finance issues were up 2.58% in the Dec. 12 week, second-best in the index, as the restructured Finova Group's 7.5% notes due 2009 were up more than three points on the week, aided by the Phoenix, Ariz.-based commercial lender's "notable exposure" to the aircraft industry, which has recently rallied on European equity markets, B of A said.

Consumer non-durable goods companies (up 2.36% on the two-point rise in WestPoint Stevens' two issues of 7.875% notes), energy (up 2.20%) and technology (up 2.08%) rounded out the list of the Top Five best-performing sectors in the latest week; it was the third straight week in the Top Five for the consumer durables, which, as already noted, were the top finisher in the week ended Dec. 5.

On the downside, international cable operators swooned 6.12%, driven down by weakness in NTL Inc., on liquidity concerns as the U.K. cabler was looking for a buyer in its tower unit. It was the fifth consecutive week the sector was in the Bottom Five grouping of the worst finishers. The week before, the utility sector had been the worst laggard, dropping 3.32%.

PCS/Cellular was the second-worst performer in the most recent week, falling 3.94%, as Nextel Communications Inc.'s 9.375% senior notes due 2009 lost four points and SBA Communications' 10.25% notes due 2009 dipped almost five. That retreat slowed the sector's two-month rally, which had started in October.

Utilities (down 2.17% as AES Corp. bonds traded off in response to Enron Corp.'s collapse), North American cable (down 1.95%) and industrials (down 1.28%) rounded out the Bottom Five list in the latest week; utilities, as already noted, were the worst-performing group in the previous week, while it was the second-straight week near the bottom for the North American cablers, which had dropped 0.47% the week before.

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