B of A High Yield Large-Cap Index up 0.44% in week; YTD loss 5.54%

By Paul Deckelman

New York, Oct. 29 - The Banc of America High Yield Large Cap Index was up for a third consecutive week, returning 0.44% in the week ended Oct. 25. That came on the heels of a 1.61% gain the week before. The index's cumulative loss for the year so far narrowed to 5.54% in the latest week from 5.95% the week before.

In the most recent week, the index's spread over Treasuries widened slightly to 1,015 basis points from 1,008 the previous week, and its yield-to-worst likewise inched up to 14.14% from 14.12%.

In the most recent week, the index tracked 340 issues with a total market valuation of $132.732 billion, versus 342 issues worth $133.046 billion the week before. 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 best performer among the three credit tiers into which B of A divides its index was once again those bonds rated B- and below (23.85% of the index), with a return of 1.32% in the most recent week. The top credit tier - issues rated BB+ and BB (23.47% of the index) - was next with a 0.24% return, while the middle tier (issues rated BB-, B+ and B, comprising 52.68% of the index), lagged with a 0.16% gain.

Banc of America's analysts noted that since the end of September (when the financial markets began climbing out of the pit into which they had plunged in the immediate aftermath of the Sept. 11 terrorist attacks on the U.S.), the index has returned 3.48%. During this time, the large year-to-date loss which had ballooned earlier in September in response to the junk market's downturn, has been notably reduced.

"As we reach the end of October, both the equity and high yield markets are staging an impressive recovery," their report declared. "We are inclined to believe that the shock and broad-based sell-off in September is transitioning to a more thoughtful evaluation of risks and better discrimination for the relative implications for companies and industries.

"However, we believe this period of reassessment and recovery still has some way to go in the high yield market. Therefore, given the still somewhat depressed valuation levels, we believe the market continues to offer selective buying opportunities," the B of A analysts concluded.

In the most recent week, domestic wireline telecommunications operators were once again the best performers, up 6.19% as level 3 Communications Inc.'s bonds rose anywhere from two to seven points on the week after the company completed its modified Dutch auction tender offer for $1.7 million (principal amount) of debt and disclosed intentions of purchasing additional bonds in the open market. It was the second straight week in which the sector had led the way, following the 8.23% jump in the week ended Oct. 18, which came mostly on the strength of gains in the bonds of XO Communications Inc. and McLeodUSA Inc. But in the week ended Oct. 11, immediately prior to these past two weeks of strong gains, the domestic wire grouping had been the worst finisher, when it nosedived 11.20% - proof of the volatile nature of the junk market in general and segments of the telecom industry in particular.

Another indicator of the market's volatility was the strong gains posted in the latest week by the international wireless sector (up 3.12%, second-best in the Index, on a 10.5-point rise in Microcell Telecommunications' zero-coupon/14% notes due 2006) and healthcare (up 1.13%, third-best in the index, as Magellan Health Services' 9% notes due 2008 gained three points); in the week ended Oct. 18, the international wireless group was the worst performer, down 1.38%, while healthcare was up just a sickly 0.01%, putting it on the Bottom Five list of the weakest sectors).

Technology issues (up 0.99%) and consumer non-cyclical companies (up 0.93%) rounded out the Top Five best performers in the most recent week; the tech issues had also made the select circle the week before with a robust 3.45% gain.

On the downside, transportation bonds fell an index-worst 3.91%, with UAL Corp.'s 11.21% notes due 2014 leading the plunge earthward with a four-point drop on continued investor angst about the company's dire warnings about United Airlines' deteriorating situation. Transportation had also been in the bottom five the previous week, with an anemic 0.07% gain against a backdrop of much larger gains be almost all other sectors. As noted, international wireless carriers had been the worst performing group in the Oct. 18 week, with an 11.20% swoon.

Finance was the second worst performing sector in the latest week, down 2.63% as Conseco Inc.'s notes fell six points on continued liquidity concerns and despite company efforts to offer investors reassurance about its viability and liquidity status.

Consumer non-durables (down 0.73% on weakness in Galey & Lord 9 1/8% paper), gaming (off 0.42%) and international cable operators (down 0.34%) rounded out the Bottom Five worst performers; it was quite a comedown for the international cablers, who had been among the strongest performers the previous week, when they had been up 3.04%.

End

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