B of A High Yield Broad Market Index off 0.28%; 2004 gain slips to 1.57%

By Paul Deckelman

New York, March 22- The Banc of America Securities High Yield Broad Market Index continued its recently uneven performance, losing 0.37% in the week ended Thursday March 18, after having risen 0.36% the previous week. The latest week's retreat pushed the index's year-to-date return down to 1.57% from 1.86% the week before.

After a strong start to the year, continuing the momentum seen in the unusually robust 2003 fourth quarter, the HY Broad Market Index's performance has lately been choppy - up a week or so here, down a week or so there - ever since the week ended Jan. 29, when the index had posted its first weekly loss since the middle of last August.

In the week ended Thursday, its spread over Treasuries continued to widen out, reaching a new 2004 high of 521 basis points. The previous high, 512 bps, had been set the week before. The index's yield-to-worst widened to 7.75% from 7.64% the week before.

B of A's High Yield Large Cap Index continued to show a similar pattern; in the week ended Thursday it was down 0.42%, on top of the previous week's 0.35% gain. The cumulative return for 2004 dipped to 0.95% from 1.37% the week before.

Large Cap's spread over Treasuries - like that of the HY Broad Market Index - ballooned in the week ended Thursday, to another new high point for the year of 506 bps, up from the previous record of 495 bps set the week before. Large Cap's yield-to-worst also widened out, to 7.72% from 7.59% the week before.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,657 issues of $100 million or more, having a total market value of slightly over $506 billion, down from over $511 billion the week before, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 576 issues of $300 million or more having a total market value of almost $301 billion, down from nearly $304 billion the previous week. B of A sees both as reliable proxies for the $750 billion high yield universe.

Strongest credits perform best

On a credit basis, the highest of the three credit tiers into which B of A divides its index - those credits rated BB+ and BB, comprising an even 15% of the index - had the best return at 0.03%. The middle tier (consisting of those issues rated BB-, B+ and B and making up 45.21% of the index) was down 0.10%, while the lowest of the three divisions - issues rated B- and below, accounting for 39.78% of the index - brought up the rear with a 0.62% decline.

The week before, the order of finish had been the same, though all three groupings were in positive territory (top tier up 0.96%, middle tier up 0.43%, bottom tier up 0.04%).

B of A analysts noted the index's first downturn after two straight weeks of gains, and noted also that "demand [as indicated by high yield mutual fund flows ] was weaker as well," with the funds showing a net outflow for the week ended last Wednesday of $264.8 million. Even so, "the primary market remained active," the analysts said, with $2.8 billion of new paper having priced by Thursday and the forward calendar still standing above $5 billion.

Fifteen out of the 23 industry groups into which B of A divides its high yield universe showed negative results in the most recent week against only five advancers. That breaks a stretch of two straight weeks in which 20 of the sub-sectors were in the black and three were in the red.

Transportation biggest loser

In the week ended Thursday, the transportation grouping was the biggest loser in the index for a second consecutive week, dropping 2.31%, a sharp deterioration from the previous week's 0.23% dip. The transportation issues collectively have now made the Bottom Five list of a given week's worst finishers for three weeks out of the past four.

Cable/DBS and wireline telecommunications (both down 1.10%) PCS/cellular operators (off 0.60%) and utility names (down 0.59%) rounded out the latest week's Bottom Five list. Wireline and PCS cellular each were in the Bottom Five the week before, with wireline off 0.10% and PCS/cellular up a weak 0.10%.

On the upside, steel led all sub-sectors with a 0.48% gain. The week before, entertainment issues had been the best performer with a 1.12% return.

Gaming (up 0.16%), healthcare and non-ferrous metals and mining (both up 0.14%) and energy (up 0.13%) rounded out the latest week's Top Five list of the best performing groupings. Non-ferrous metals and mining and energy had both in the Top Five the previous week, with returns of 0.66% and 0.65%, respectively. It was the fourth consecutive week the non-ferrous metals and mining grouping had made the Top Five.

On a year-to-date basis, the non-ferrous metals and mining group continued to lead the way, its Top Five performance fattening its cumulative 2004 return to 6.90% from 6.75% the week before.

Finance lost some ground during the week but remains in second place, returning 3.92% year-to-date, off from 4.10% the week before.

Consumer non-cyclicals dipped to 3.79% from 3.88% the week before, while consumer non-durables stayed not far behind, with a 3.72% cumulative gain, off slightly from 3.74% previously.

On the downside, wireline telecom, a repeat Bottom Five name in the week ended Thursday, remains clearly the worst performer on year-to-date basis, its loss for the year deepening to 3.79% from 2.72% the week before. However, wireline is no longer the only name in the red.

Transportation, hurt by two straight weeks as the index's worst performer, moved into the red with a 1.85% year-to-date loss, a sharp deterioration from the previous week's 0.46% cumulative gain.

Other groupings in negative territory year-to-date include cable/DBS, a Bottom Five name this week, off 0.33% for the year so far; Bottom Fiver utilities (down 0.10%); and publishing (also down 0.10%).

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