B of A High Yield Large-Cap Index up 1.61% in week; YTD loss trimmed to 5.95%

By Paul Deckelman

New York, Oct. 22 - The Banc of America High Yield Large Cap Index notched a sizable gain for a second consecutive week, returning 1.61% in the week ended Oct. 18. That came on the heels of a 1.39% gain the week before. For the year so far, the index's cumulative loss narrowed to 5.95% in the latest week from 7.44% the week before.

In the most recent week, the index's spread over Treasuries narrowed slightly to 1,008 basis points from 1,013 the previous week, and its yield-to-worst likewise declined to 14.12% from 14.28%.

In the most recent week, the index tracked 342 issues with a total market valuation of $133.046 billion, versus 343 issues worth $131.623 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, those rated B- and below (23.57% of the index) had the best return in the most recent week. The middle tier, of issues rated BB-, B+ and B, and comprising 53.13% of the index, had the next best performance, up 1.58%. The top tier - issues rated BB+ and BB (23.30% of the index) - had a 1.06% return.

Banc of America's analysts noted that in the week ended last Wednesday, AMG Data Services reported a substantial $470 million net inflow into high yield mutual funds, but while two new deals totaling $400 million priced, "the weak forward calendar is not providing the capacity to enable investors to put cash to work quickly enough. In the secondary market, investors are not only still interested in defensive sectors such as healthcare, they are also seeking attractive beaten up names in a variety of sectors such as gaming."

In the most recent week, domestic wireline telecommunications operators were the best performers, up 8.23% on gains posted in the bonds of XO Communications and McLeodUSA. The latter's zero-coupon/9.45% senior discount notes due 2008, for instance, were up five points on the week on news XO will provide Web-hosting services to Microsoft Corp.'s bCentral unit. In the week ended Oct. 11, by way of contrast, the domestic wirelines had been the single worst finisher, plummeting 11.20%. The best performer that week was international wireline carriers, up 17.35%.

Satellite services was the second best performer in the Oct. 18 week, up 4.25% on gains in Loral Space & Communications 11.25% bonds. Lodging was third-best, up 3.61%, powered by a 9-point gain in FelCor Lodging's 8.5% notes. Technology (up 3.45%) and international cable operators (up 3.04%) rounded out the Top Five list of best performers for the week; the international cablers had also been in the Top Five the week before, with a 10.36% jump.

On the downside, international wireless telecom companies were off an index-worst 1.38% as Nextel International Inc.'s bonds lost three points on continued negative investor sentiment. The international wireless group had also been in the previous week's Bottom Five list of the worst performers, with a 3.23% loss, although the worst laggard in the index that week, as noted, was the domestic wireline companies.

Steel was the second-worst group, down 1.29% as U.S. Steel and National Steel's bonds retreated in the wake of Bethlehem Steel Corp.'s bankruptcy filing. Steels had also been in the Bottom Five the week before, dropping 1.54%.

Chemicals (down 0.82%), healthcare (up 0.01%) and transportation (up 0.07%) rounded out the list of the five weakest performers; transportation had been the second-best finisher in the Oct. 11 week, when it was up 11.12%.

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