B of A High Yield Large-Cap Index up 2.26% in week; YTD loss cut to 1.89%

By Paul Deckelman

New York, Nov. 19 - The Banc of America High Yield Large Cap Index was up for a sixth consecutive week, returning a stellar 2.26% in the week ended Nov. 15. That came on the heels of a 1.37% gain the week before. The index's cumulative loss for the year so far narrowed considerably to 1.89% in the latest week from 4.06% the week before.

In the most recent week, the index's spread over Treasuries narrowed to 920 basis points from 1,022 the previous week - the first time this quarter the spread has been below 1,000 basis points. Its yield to worst in the latest week likewise contracted to 13.42% from 13.98%.

In the most recent week, the index tracked 337 issues with a total market valuation of $136.142 billion, versus 339 issues worth $134.109 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 was the lowest tier - bonds rated B- and below (25.57% of the index) - which jumped 3.63%. The middle tier (issues rated BB-, B+ and B, comprising 51.56% of the index), was next with a 2.22% return on the week. The top credit tier - issues rated BB+ and BB (22.87% of the Index) - lagged behind with a 0.97% return.

The sharp gain among the lower-rated bonds was an abrupt reversal from the previous week, when they posted only a paltry 0.04% rise, while the other two tiers enjoyed sizable advances.

Banc of America analysts noted that the hard-hit telecommunications sector - which has the largest concentration of issues in the lowest credit tier - led the rally for the overall index, its hefty 6.91% rise the largest of the 13 broad market sectors which the index tracks. Three of the top five subsectors in the most recent week were telecom related.

Domestic wireline issues were up 8.07%, buoyed by "market reaction to unsubstantiated event-specific rumors" about Level 3 Communications Inc. (i.e., takeover speculation supposedly involving British Telecom) which caused the Broomfield, Colo.-based long-haul carrier's benchmark 9.125% notes to rise more than five points on the week.

It was a notable turnaround for the domestic wirelines, which had landed among the bottom five performers the previous week with a 0.77% loss. The best-performing sub-sector the previous week had been finance, which had risen 8.49%.

PCS/cellular issues were the next-strongest finisher in the Nov. 19 week, up 6.05% on the week as Nextel, No. 5 U.S. wireless carrier and largest high yield issuer in the industry, gained on company assurances about its strong liquidity position and fully funded plans. The PCS cellular group had also been one of the big winners the week before, when they were up 3.00%.

Advertising-dependent media (up 4.65% as XM Satellite Radio's 14% notes rose 11 points on the nationwide launch of its 100-channel digital satellite radio service), lodging (up 3.72%) and international wireline (up 2.94%) rounded out the list of the top five best performers for the week; ad-dependent media had been among the worst finishers the week before, when it lost 0.42%.

On the downside, transportation issued nosedived 11.06% in the latest week on continued investor angst about United Airlines, whose notes dropped 9 points; the group had also been in the bottom five the previous week, with a 0.41% fall. Non-ferrous metals and mining credits had been the worst performer the previous week, with a 1.98% loss.

Satellite services was the second-worst performer in the most recent week, falling 2.04% as Loral Space & Communications bonds lost 5 points of altitude. Just the week before, the satellite group had posted a 2.45% return to make it into the top five for a second straight week.

Business services (down 1.04% on weakness in Allied Waste North America debt), steel (down 0.55%) and international cable operators (down 0.07%) rounded out the Bottom Five worst performing sub-sectors; it was the third straight week near the bottom for the steelers, who lost 0.28% the week before and 2.49% the week before that.

End

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