B of A High Yield Broad Market Index up 0.60%, year-to-date gain increases to 20.64%

By Paul Deckelman

New York, Sept. 23 - The Banc of America High Yield Broad Market Index rose 0.60% in the week ended Thursday Sept. 18, its fifth straight weekly gain, bringing its cumulative 2003 return to its highest point for the year so far, at 19.92%.

In the previous week, ended Sept. 11, the index had risen 0.64%, for a year-to-date return of 19.92%.

In the latest week, the spread over Treasuries widened out to 598 basis points, up from 595 bps the previous week, while the index's yield-to-worst dropped to its lowest level of the year, 8.90%, versus the previous week's 9.02%.

B of A's High Yield Large Cap Index also continued to push upward in the latest week, with a return of 0.61% - essentially matching the HY Broad Market gauge, versus the previous week's 0.64%. The year-to-date return fattened in the latest week to 23.31% from 22.57%, the previous week. In the latest week, the spread over Treasuries was 563 basis points, widening slightly from 560 bps previously, but the yield-to-worst was a year's low 8.67%, versus the previous week's 8.79%.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,568 issues of $100 million or more, having a total market value of nearly $457 billion, while the High Yield Large Cap Index, representing the most liquid portion of the high yield world, tracked 523 issues of $300 million or more, having a total market value of over $270 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 tone "remained strong," despite a second consecutive weekly outflow from high yield mutual funds, which are considered a reliable barometer of overall junk market liquidity trends. B of A called the $79 million outflow for the latest week "minute," and noted that even following on the heels of the previous week's outflow of nearly $500 million, "cash seems to be plentiful, as over $4 billion was injected into High Yield Funds in the last two weeks of August."

The plentiful cash supply - even with two weeks of outflows totaling over half a billion dollars - continued to fuel primary issuance, which, "after weeks of low new issue supply . . . picked up significantly during the latest week," with eight issuers tapping the market for total proceeds of $4.53 billion through last Thursday.

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 15.46% of the index - had the best return for a second consecutive week, rising 0.81%. It was followed by the bottom credit tier, of issues rated B- and below (36.05% of the index), which returned 0.61%, followed by the middle credit tier (those issues rated BB-, B+ and B, making up 48.49% of the index), which returned 0.52%.

Continuing a recent trend of across the board strength, the analysts further noted that 24 of the 27 industry sectors into which Banc of America Securities divides its high yield universe were in positive territory, with just three sectors posting negative returns for the latest week.

The best- performing sector in the latest week was the finance sector, which returned 1.39%, as Finova Group's 7½% notes due 2009 gained 1.875 point to end at 51.875, while Metris Cos.' 10% notes due 2004 and 10 1/8% notes due 2006 were both up 3½ points to end the week at 71.5. Finance had also been among the top finishers the previous week, with a 1.66% return, while the top spot the week before was held by steel companies, up 1.81%.

Domestic wireline telecommunications operators were the second-best performers in the latest week, returning 1.28%, as Qwest Communications International Inc. bonds gained as much as two points after the company completed the second part of its $7.05 billion sale of its directory unit, with proceeds slated for debt paydown. Qwest Capital Funding's 7¼% notes due 2011 gained a point-and-a-half on the week to close at 86.5.

Consumer non-cyclicals (up 0.85%, largely on strength in the notes of supermarket operator Delhaize America and deathcare company Service Corp. International), consumer durables and technology (both up 0.84%) rounded out the Top Five list of the best-performing sectors in the most recent week.

On the downside, steel - which as noted had been the top performer the week before - went from first to worst in the latest week, losing 0.44% as AK Steel Corp. notes fell in response to the surprise announcement that Chairman and Chief Executive Officer Richard Wardrop and President John Hritz had resigned. AK's 7¾% notes due 2012 lost a point-and-a-quarter to close at 78.75.

Satellite services dipped 0.23% as PanAmSat Corp.'s 8½% notes due 2012 lost nearly a point to end at 104.25, while transportation issues (which had been the worst finishers the previous week, when they eased 0.09%) lost 0.06% in the latest week, as Delta Air Lines bonds lost two points, on average.

Entertainment (up 0.13%) and gaming (up 0.26%) were in the black, but rounded out the week's Bottom Five list of weakest finishers by achieving smaller returns than all of the other sectors that posted positive returns; gaming had been in the same position a week earlier, when it rose a smaller-than-the-norm 0.17%.

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