B of A High Yield Broad Market Index up 0.75%, year-to-date gain increases to 23.22%

By Paul Deckelman

New York, Oct.20 - The Banc of America High Yield Broad Market Index rose 0.75% in the week ended Thursday Oct. 16, its ninth consecutive weekly gain, bringing its cumulative 2003 return to its highest point for the year so far at 23.22%

In the previous week, ended Oct. 9, the index had risen 0.63%, for a year-to-date return of 22.31%.

In the latest week, the index's spread over Treasuries tightened considerably to 537 basis points, its low for the year so far, from 569 bps the previous week. The junk bond index's yield-to-worst meanwhile tightened to 8.50%, also the year's low, from 8.65% the week before.

B of A's High Yield Large Cap Index also continued to push upward in the latest week, with a return of 0.87%, versus the previous week's 0.81%. The year-to-date return fattened in the latest week to its peak level for the year, 26.22%, from 25.13% the previous week. In the latest week, the spread over Treasuries was 498 basis points, tightening sharply to a new year-to-date low from 532 bps previously, while the yield-to-worst fell to a year's-low 8.22%, versus the previous week's 8.41%.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,589 issues of $100 million or more, having a total market value of nearly $478 billion, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 549 issues of $300 million or more having an aggregate market value of almost $290 billion. B of A sees both as reliable proxies for the more than $700 billion high yield universe.

Banc of America Securities analysts observed that the high yield asset class "continues to attract investor demand," noting that the junk bond mutual funds notched their fourth consecutive net inflow of nearly $770 million in the recent week, a level they termed "strong" when compared with the relatively modest inflows seen over the three previous weeks - $68 million, $79.7 million and $153 million. The mutual fund flows are considered a reliable barometer of overall market liquidity trends. The analysts also noted a sharp pick-up in high yield new issuance during the latest week - some $2.3 billion.

On a credit basis, the lowest of the three credit tiers into which B of A divides its index (issues rated B- and below, accounting for 35.80% of the index), had the strongest return, 1.08%, which the analysts said further added to its "stellar" year-to-date return of 37.43%. This was followed by the middle credit tier (those issues rated BB-, B+ and B, making up 49.05% of the index), with an 0.68% gain, while the highest tier, representing credits rated BB and BB+ and comprising 15.15% of the index, had the lowest return, of 0.17% on the week. It was the second straight week in which the credit groupings finished in that order.

Continuing - and expanding - the recent trend of broad-based strength, all 27 of the industry sectors into which Banc of America Securities divides its high yield universe were in positive territory in the latest week.

The best performing sector in the latest week was the transportation sector, which zoomed 3.14% on strength in airline bonds following positive earnings announcements from major carriers Northwest Airlines Corp. and Continental Airlines Inc. and a narrowed loss versus a year-ago for Delta Air Lines. Northwest's bonds gained up to 11½ points, with its 8 7/8% notes due 2006 climbing nine points on the week to 87. Continental's 8% notes due 2005 rose five points to 98, while Delta's bonds also gained nearly five points on average for the week. In the previous week, the steel sector had led all contenders, with a 1.97% return.

Domestic wireline telecommunications operators were up 1.79% in the most recent week, second-best in the index, on what the analysts termed "broad-based strength," as Level 3 Communications Inc. bonds gained up to 3½ points, Qwest Capital Funding notes rose by up to 2½ points, and Qwest Services Corp. notes were up as much as 1¾ points. Domestic wireline issuers had also been on the Top Five list of best performing sectors the week before, when they were up 0.92%

Satellite services (up 1.51%), on strength in PanAmSat Corp. bonds, chemicals (up 1.19%) and PCS/cellular companies (up 1.07%) rounded out the latest week's Top Five; satellite services had been the worst-finishing sector in the previous week, when the group was down 0.15%.

On the downside - there was no downside, as all of the sectors on the Bottom Five list of the week's weakest finishers were in positive territory, although at considerably lower levels than most other sector groups.

International cable operators had the smallest return of all, 0.15%, followed by consumer non-durables (up 0.16%), steel (a 0.27% return), advertising-dependent media (up 0.33%) and consumer non-cyclical companies (up 0.34%). In the previous week, as noted, the steelmakers had been the top performer of all.

On a year-to-date basis, international wireline telecom's cumulative gain fattened to 70.45% from 69.30% the week before, while international wireless telecom hung in there in second place with a 65.49% total return, up from 64.84% previously.

Despite a second straight week of positive returns (although this week, they were among the most feeble in the whole index, unlike the week before when they were the top finisher) the steelmakers remained the only one of the 27 industry sectors in the red for the year-to-date, although the group's cumulative loss narrowed to 2.13% from 2.40% the previous 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.