B of A High Yield Broad Market Index up 0.26%, year-to-date loss cut to 0.14%

By Paul Deckelman

New York, June 21 - The Banc of America Securities High Yield Broad Market Index zig-zagged back into the black in the week ended June 16, gaining 0.26% on top of the 0.08% retreat the previous week. That cut the index's year-to-date loss to 0.14% from 0.40% the week before.

Although the gain in the latest week was modest, it represented the third week in the last four in which the index had a positive return, after a prolonged downturn that ran from early in the year until late May and at its worst, had pushed the year-to-date loss up to 3.31%.

The index's spread over Treasuries, which in the previous week had narrowed slightly to 415 basis points from 418 bps, came in further, to 402 bps, while its yield to worst - which had previously dwindled from 7.95% to 7.91%, likewise kept easing, to 7.87% in the week ended Thursday.

Large caps up 0.33% for week

The more narrowly focused High Yield Large Cap Index, which essentially mirrors the patterns seen in the HY Broad Market Index, also notched its third advance in the last four weeks, rising 0.33% in the most recent week, a reversal of the previous week's 0.27% downturn. Its year-to-date loss narrowed 0.27% from 0.59% the week before.

HY Large Cap's spread over Treasuries in the most recent week came in to 380 bps from 394 bps the previous week, while its yield to worst declined to 7.67% from 7.72% previously.

In the latest week, the more inclusive HY Broad Market Index tracked 1,682 issues of $100 million or more, up from 1,675 the week before, and the overall value of the issues grew to $529.9 billion from $524.8 billion the previous week.

The HY Large Cap Index, representing the most liquid portion of the high-yield world, meantime tracked 615 issues of $300 million or more, up from 610 the week before, and total market value rose to $326.4 billion from $320.8 billion. B of A sees both as reliable proxies for the $750 billion high-yield universe.

Lowest credit tier outperforms

On a credit-quality basis, the lowest of the three credit tiers into which B of A divides its index - those issues rated B- and below, accounting for 33.83% of the index - was up 0.82%, while the middle tier - those issues rated BB-, B+ and B, making up 47.99% of the index - rose 0.12%. The topmost credit tier - those issues rated BB+ and BB, comprising 18.18% of the index - brought up the rear with an 0.04% loss.

It was the second week in which the three tiers finished in that order; in the week ended June 9, the lowest tier had risen 0.03%, the only one of the three to show a gain, while the middle tier lost 0.11% and the top tier dropped 0.24%. Overall, it was the fourth consecutive week in which the previously lowly bottom tier was on top, continuing to break the earlier recent pattern of the top tier leading the way in five weeks out of the prior six and of the lowest tier having the worst return of all three tiers in six weeks out of the previous seven, no matter who led.

Banc of America Securities analysts noted that the junk secondary market was "powered by positive news in utilities, the dissipation of noise in autos, and investors chasing yield."

Primary market active

The primary market, they pointed out, was busy, with $1.94 billion of proceeds from eight deals by the close Thursday, although that was modest compared with the mammoth $4.15 billion of new junk priced from seven issuers in the equivalent period the week before.

The analysts further said that the high-yield mutual funds showed a $383 million net outflow in the week ended Wednesday, breaking a short-lived streak of two previous weeks of inflows, including $109 million in the week ended June 8. The flows, measuring only those funds that report weekly and excluding distributions, are a measure of overall junk market liquidity trends.

Seventeen of the 23 industry sectors into which B of A divides its high-yield universe had positive returns in the most recent week, versus a 13-10 positive split the week before, which occurred even though the overall index posted a modest loss that week. Over the past four weeks, a majority of sectors have been in the black, including two weeks in which all were positive. Before that, all or almost all, of the sectors, were showing losses in most weeks, dating back into March.

Ad media tops for week

Advertising-dependent media had the strongest showing of any sector in the most recent week, rising 0.83% - a sharp reversal from the previous week when the sector lost 0.58% and wound up among the Bottom Five worst-performing groupings. Ad-dependent media took over the top spot from transportation, which had been the best performer the previous two weeks and three weeks out of the prior four, including the week ended June 9, when it rose 0.53%.

Consumer durables gained 0.74% in the latest week, second-strongest in the index. Utilities (up 0.62%), consumer non-durables companies (up 0.46%) and industrials and business services (each up 0.43%) rounded out the latest week's Top Five list of best-performing sectors. Business services had been in the Bottom Five the previous week, when the sector fell 0.45%.

Transportation worst in week

On the downside, transportation - which, as mentioned, had been the top performer in three weeks out of the last four, including the June 9 week - went from first to worst, plunging 1.88%, led lower by erosion in Northwest Airlines Corp. bonds. It displaced cable/DBS operators which had fallen 0.90% in the week ended June 9, to take over the unenviable distinction as worst finisher.

Non-ferrous metals and mining (down 0.52%), chemicals (down 0.18%), publishing (down 0.13%) and healthcare and entertainment (each down 0.04%) rounded out the latest week's Bottom Five list. It was a reversal for non-ferrous metals and mining, chemicals and entertainment, each of which had been among the Top Five the previous week, when they were up 0.44%, 0.51% and 0.27%, respectively; entertainment had actually been in the Top Five for two straight weeks at that point. Chemicals, on the other hand, has now been in the Bottom Five in two weeks out of the past three.

Transportation worst for year

On a year-to-date basis, the transportation sector's index-worst plunge deepened its cumulative loss - which had been shrinking over the past few weeks - back out to 10.39%, clearly the worst in the index, from 8.67%.

However, Top Fiver consumer durables' deficit continued to lessen, to 4.58% from 5.28% the week before.

Others showing notable negative returns for the year so far were steel, although its loss decreased to 3.52% from 3.76%, as well as paper and packaging, whose deficit eased to 2.12% from 2.27%.

On the upside, PCS/cellular remained the leader, as its return improved to 4.35% from 4.03% the week before. Finance was second, improving to 3.32% from 3.20%. Business services improved to 1.63% from 1.19%, eclipsing Bottom Fiver publishing, which fell to 1.60% from 1.73% the week before.

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