B of A High Yield Broad Market Index up 0.26%, year-to-date gain increases to 20.95%

By Paul Deckelman

New York, Sept. 29 - The Banc of America High Yield Broad Market Index rose 0.26% in the week ended Thursday Sept. 25, its sixth straight weekly gain, bringing its cumulative 2003 return to its highest point for the year so far at 20.95%.

In the previous week, ended Sept. 18, the index had risen 0.60%, for a year-to-date return of 20.64%.

In the latest week, the spread over Treasuries widened slightly to 600 basis points, up from 598 bps the previous week, while the index's yield-to-worst dropped to its lowest level of the year, 8.86%, versus the previous week's 8.90%.

B of A's High Yield Large Cap Index also continued to push upward in the latest week, with a return of 0.20%, versus the previous week's 0.61%. The year-to-date return fattened in the latest week to its peak level for the year, 23.56%, from 23.31% the previous week. In the latest week, the spread over Treasuries was 564 basis points, widening slightly from 563 bps previously, but the yield-to-worst was a year's-low 8.62%, versus the previous week's 8.67%.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,583 issues of $100 million or more, having a total market value of over $466 billion, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 535 issues of $300 million or more, having a total market value of almost $279 billion. B of A sees both as reliable proxies for the approximately $700 billion high yield universe.

B of A analysts noted that the secondary market "continued to grind higher although the market's attention was focused on the primary front" in the latest week." Indeed, as of Thursday, five new deals with proceeds totaling $790 million had come to market, while the forward calendar continued to "build gradually" to about $2.8 billion. The analysts noted that "technicals on the demand side also appear strong, as the new issues were well received by the market."

Among those favorable technical factors was continued ample liquidity, with mutual fund flows for the week - a key proxy for overall market liquidity trends - showing a net inflow of $152.9 million in the week ended this past Wednesday, counting only those funds which report weekly; the inflow was a reversal from the previous two weeks, in which outflows had been seen, the analysts noted.

On a credit basis, the highest of the three credit tiers into which B of A divides its index - representing credits rated BB and BB+ and comprising 15.716% of the index - had the best return for a third consecutive week, rising 0.44%. It was followed for a second consecutive week by the bottom credit tier, (issues rated B- and below, accounting for 36.02% of the index), which returned 0.35%, with the middle credit tier (those issues rated BB-, B+ and B, making up 48.26% of the index), lagging behind and slightly underperforming the index, at 0.13%.

Continuing a recent trend of across-the-board strength, 23 of the 27 industry sectors into which Banc of America Securities divides its high yield universe were in positive territory in the latest week, with just four sectors posting negative returns.

The best performing sector in the latest week was the domestic wireline telecommunications sector, which returned 1.40%. Chief gainer was Level 3 Communications Inc., rising on average three-and-a-half points following the Broomfield, Colo.-based high-speed telecom network operator's announcement of a $500 million offering of senior notes, with proceeds to be used for the retirement of its credit facility. Standard & Poor's raised the outlook on Level 3 "developing" from "negative" based on the company's "improved financial flexibility following retirement of the credit facility and elimination of associated covenants, and rising cash flow." Level 3's 9 1/8% notes due 2008 rose nearly three points to end the week at around 87.5.

It was the second straight week during which the domestic wireline group had been among the best high-yield performers. In the week ended Sept. 18, the domestic wirelines had returned 1.28%, second-best in the index, behind only finance issues (an index-best 1.39%).

The second-strongest sector during the most recent week was non-ferrous metals and mining, which gained 0.64%, as coal producer Peabody Energy Corp.'s 6 7/8% notes due 2013 and USEC Inc.'s 6¾% notes due 2009 were both quoted a point higher.

Industrials (up 0.49% on strength in the bonds of Wesco Distribution and Sequa Corp.), consumer non-durables (up 0.44%) and lodging (0.43% better) rounded out the Top Five best performing sectors in the most recent week.

On the downside, steel was the worst-performing group for a second consecutive week, down 2.81%, on top of the index-worst 0.44% the previous week; AK Steel Corp. notes continued to slide in response to the recent surprise announcement that chairman and chief executive officer Richard Wardrop and president John Hritz had resigned. AK's 7¾% notes due 2012 dropped over eight point on the week to 70 bid, while its 7 7/8% notes due 2009 were likewise down eight to close at 73.

North American cable operators eased 0.15%as Mediacom Communications Corp. bonds dipped two-and-a-quarter points on average after S&P revised its outlook to "negative."

Advertising-dependent media was off 0.05% as the bonds of such sector names as Allbritton Communications and Sinclair Broadcast group lost half a point, while PCS/cellular operators were also off 0.05%.

Publishing - actually in the black, with a 0.08% gain, although this was much smaller than all of the other gainers for the week - rounded out the Bottom Five list of the week's weakest-performing sectors.

On a year-to-date basis, international wireline telecom has been the strongest performer, returning a sparkling 67.36%, with international wireless telecom operators not far behind at 64.37%.

Steelmakers (as noted, the worst-performing individual sector for each of the past two weeks) are the only industry sector in the red for the year-to-date, down 1.69%.

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