B of A High Yield Large-Cap Index up 0.76%, 5th straight gain; YTD loss cut to 8.26%

By Paul Deckelman

New York, Nov. 19 - The Banc of America High Yield Large Cap Index posted its fifth consecutive gain in the week ended Thursday (Nov. 14), firming 0.76%. That gain followed the 3.34% jump in the previous week (ended Nov. 7).

The High Yield Large Cap Index's year-to-date loss narrowed for a third to 8.26% in the most recent week from 8.96% the week before. While still large in objective terms, the year-to-date loss has sharply receded from its peak cumulative loss for the year, the negative 15.68% return recorded in the week ended Oct. 10.

The index's spread over Treasuries and yield to worst both narrowed in the most recent week to 1,065 basis points and 13.89% versus 1,080 basis points over and 13.93% in the previous week.

Even with the sizable bounce seen over the past five weeks, the index's cumulative performance still remains badly below the relatively modest loss level at which it ended 2001, when the B of A market measure suffered an approximate 3% loss for the full year. The spread at the end of 2001 was somewhat over 900 basis points off Treasuries and its year-end yield-to-worst was above 13.50%.

In the week ended Thursday, the index tracked 380 issues, the same as a week before, with a total market value of $154.202 billion, versus $153.333 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 over $500 billion.

The bank's broader high yield index, which includes issues of $100 million or more, meantime tracked 1,365 issues having a collective market value of $304.727 billion in the most recent week, versus 1,366 issues worth $303.352 billion the week before.

The High Yield Broad Market Index was up 0.67% on the week, and had a spread of 1,072 basis points and a 13.80% yield-to-worst in the most recent week, versus the previous week's gain of 2.48%, its 1,087 basis points spread and 13.82% yield-to-worst. The High Yield Broad Market Index's year-to-date loss narrowed to 3.06% from 3.71% the week before.

As was the case the week before, the latest week's advance was broad based, with 24 of the 27 industry sectors into which B of A divides its High Yield Broad Market Index posting gains. In the week ended Nov. 7, only two of the sectors had been in the red.

Of the three credit tiers into which B of A divides the index, the bottom tier - bonds rated B- and below, making up 34.42% of the index, including many of the rebounding telecom and cable issues - turned in the strongest performance in the latest week, up 0.83%. Next was the big middle credit tier (issues rated BB-, B+ and B, comprising 50.23% of the index), with a 0.68% return on the week, while the top credit tier (issues rated BB+ and BB, making up 15.29% of the index) was up 0.27%. The week before - in fact, in the previous three weeks - the middle tier had been on top, followed by the bottom tier and then the top tier.

B of A analysts noted that the credit markets "posted solid results last week on the heels of the previous week's rally," and opined that a pick-up in non-auto retail sales, lower-than-expected initial unemployment claims and Federal Reserve Chairman Alan Greenspan's emphasis on his long-term optimism in his remarks to the congressional Joint Economic Committee "all helped to ease the markets' fears regarding a sluggish economy and lent support to most credits," encouraging investors to turn away from Treasuries to riskier assets.

High yield, the analysts said, "continued to trade up on [the recent] positive momentum," with such long-distressed sectors as wireless, technology and transportation especially benefiting. "Solid demand in high yield was evidenced in last week's high yield fund inflow" of $332.5 million, the B of A report said. That inflow was the fifth in a row - coinciding with the revival in the high yield market.

The best performing industry sector in the high yield universe in the week ended Nov. 14 was PCS/cellular operators, up 2.82% on good third-quarter earnings results by several sector players. American Tower Corp.'s 9 3/8% notes due 2009 gained five points during the week to close at 64.5 after reporting sequential revenue and EBITDA growth for the quarter, while Rural Cellular's bonds gained as well after reporting a third-quarter profit, its 9¾% notes due 2010 also advancing five points to end at 49. Western Wireless bonds were up after the company reported a smaller loss on a year-over-year basis, and a smaller loss-per-share than the Street had been expecting, while Nextel Communications Inc.'s notes were up around 1½ points across the board.

In the week ended Nov, 7, the top sector had been transportation issues with an 11.08% gain.

Technology companies had the second-best showing in the most recent week, gaining 2.30% on continued strength across the sector. Nortel Networks' bonds gained between three and eight points during the week, with its 6 1/8% notes due 2006 firming eight points to close at 61, while Amkor Technology's 9¼% notes due 2006 and 9¼% notes due 2008 gained three points and 2½ points respectively to close at 87.5 and 86. It was the third straight week that the Techs had been among the Top Five best-performing sectors; the week before, they were up 3.74%.

Lodging (up 1.59%, as Meristar Hospitality's bonds rose as the company completed the sale of its Las Vegas Crowne Plaza), finance (up 1.58%) and transportation (up 1.30%) rounded out the Top Five; the week before, the finance issues had been on the Bottom Five list of the weakest performers, with a small 0.83% gain, far less than most other sectors, while the transportation issues, as already noted, had been the best performers of all.

On the downside, only three industry sectors were actually in the red; the other two members of the Bottom Five had minuscule positive returns.

North American cable issues were the worst performers of the week, with the group down 0.62% as Charter Communications' bonds weakened after Moody's Investors Service cut its speculative grade liquidity rating for Charter to SGL-3 from SGL-2; Charter's bonds were down at least a point or more during the week, with its 8 5/8% notes due 2009 losing 1.375 points to close at 41.75.

The domestic cablers had been in the Top Five, with a 5.49% gain, the week before; that week, the worst-performing sector was international cable, down 5.49%.

Entertainment was the second-worst finisher in the most recent week, easing 0.32% as Six Flags/Premier Parks bonds pulled the sector down when it reported third-quarter results marked by a 2.4% year-over-year decrease in revenues and a 7.2% drop in attendance at its consolidated parks versus a year earlier.

Energy issues (off 0.02%), consumer non-durables (up 0.04%) and non-ferrous metals and mining (up 0.10%) rounded out the latest week's Bottom Five; the consumer non-durables had occupied a similar position the week before, when they rose a relatively modest 0.35%.

© 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.