B of A High Yield Large-Cap Index up 0.72%, year-to-date gain increase to 21.42%

By Paul Deckelman

New York, July 16 - The Banc of America High Yield Large Cap Index turned in a solid performance in the most recent week, returning 0.72% and pushing its year-to-date return up to 21.42%, its peak level for the year.

In the week ended last Thursday, the index also showed a spread over comparable Treasury issues of 635 basis points, its narrowest of the year, and a yield to worst of 8.91%, also a new low.

Banc of America did not officially publish its High Yield Large Cap and High Yield Broad Market indexes the previous week, due to the Independence Day holiday, but said that as of July 3, the Large Cap Index had eased 0.09% during the very quiet week, while its year-to-date return stood at 20.55%, with a spread of 640 basis points and a yield-to-worst of 9.06%

The more inclusive High Yield Broad Market Index - which had risen just a scant 0.02% in the holiday-shortened week ended July 3, for a year-to-date gain of 17.47% - returned 0.56% in the week ended July 10, and its cumulative return for the year rose to 18.62%. In that most recent week, the spread versus Treasuries was 667 basis points and the yield-to-worst was 9.11%, both improved from 677 basis points and 9.22%, respectively, the previous week.

(In the latest week, the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 505 issues of $300 million or more having a total market value of over $259 billion. The High Yield Broad Market Index tracked 1,567 issues of $100 million or more, having a total market value of nearly $450 billion. B of A sees both as reliable proxies for the approximately $700 billion high yield universe.)

As has been the case all year, the behavior of the B of A indexes has been closely correlated to changes in junk bond market liquidity, as measured by the weekly mutual fund flow statistics generated by AMG Data Services. Inflows have been seen most weeks - including some of over $1 billion - and the Banc of America indexes have risen along with the inflow numbers. In the latest week, the junk funds showed a net inflow of approximately $224 million and the B of A analysts said that "demand for speculative grade paper was evident" in the latest inflow numbers. At the same time, they noted the strong high yield supply in the most recent week, when some $3.7 billion came to market in seven deals, including Calpine Corp.'s nearly $2.6 billion three-part blockbuster.

On a credit-rating basis, the bottom-most of the three tiers into which B of A divides its High Yield Broad Market index (credits rated B- and below) had the biggest gain, 0.89%. The middle tier (credits rated BB- , B+ and B) and the highest tier (issues rated BB and BB+) had returns of 0.38% and 0.27% respectively.

Of the 27 industry sectors into which Banc of America divides its high yield universe, all but one of them had positive returns in the most recent week.

North American cable operators led the way with a 2.70% gain, as the bonds of Charter Communications Holdings Inc. firmed about five points on average on the news that the company would bring a $1.7 billion junk bond deal to market in order to repurchase over $1 billion of convertible notes. Charter's 8 5/8% notes due 2009 were up 4¾ quarter points to end the week at 76.

PCS/cellular companies gained 1.32% on broad-based gains by several players, notably Sprint PCS affiliates Alamosa Delaware, whose bonds rose four points, Airgate PCS, up seven points, and U.S. Unwired, over six points higher.

International cable (1.24% better, on strength in ONO Finance paper), steel companies (up 1.07%) and domestic wireline telecommunications operators (ahead 0.94%) rounded out the latest Week's Top Five list of best-performing sectors.

On the downside, only satellite services companies finished in the red - and they were only down 0.09% as PanAmSat's 8½% notes due 2012 lost a bit less than a point to close at 107.

All of the other names on the Bottom Five list of weakest performing names merely posted much smaller-than-average advances, led by chemical makers (0.02%), non-ferrous metals and mining issues (0.11%), advertising-dependent media (0.15%) and paper and packaging names (0.17%).

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