B of A High Yield Large-Cap Index off 0.11% in week; YTD loss widens to 1.40%

By Paul Deckelman

New York, Dec. 3 - The Banc of America High Yield Large Cap Index was off slightly for the first time after seven straight consecutive weekly advances, easing 0.11% in the week ended Nov. 29. That came on the heels of a 0.61% gain the week before. The index's cumulative loss for the year, which in the week ended Nov. 22 had narrowed considerably to as low as 1.29% (from far higher levels in the weeks immediately after the September 11 terrorist attacks), widened a bit to a 1.40% in the latest week.

In the most recent week, the index's spread over Treasuries widened slightly to 907 basis points from its recent low of 900, reached the previous week. Its yield-to-worst in the latest week was unchanged at 13.31%.

In the most recent week, the index tracked 337 issues with a total market valuation of $137.512 billion. 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 top credit tier - issues rated BB+ and BB (22.37% of the Index), which gained 0.80%. Next was the middle tier (issues rated BB-, B+ and B, comprising 51.76% of the Index), which was up 0.51%, while the lowest tier - bonds rated B- and below (25.87% of the Index) - fell 2.28%.

With the downgrade from investment grade to single-B junk of about $12.4 billion of Enron Corp.'s long-term issues this past week, B of A analysts predicted that it "could be included in the December return portfolios of high yield indices that do not use a seasoning period for fallen angels" - i.e., a period of delay between the time a high grade credit becomes a junk bond and the time it joins a high yield index, such as the 12-week seasoning period which B of A uses in its several indices. Therefore, "the influx of Enron's debt into high yield indices without fallen angel seasoning could materially alter the composition of the energy sector in these indices."

In the latest week, steel issues led the parade, up 5.04% on the week, as AK Steel's 7 5/8% notes due 2009 firmed 4.5 points, and WCI Steel's 10% notes due 2004 also pushed up, on the news that non-U.S. producers will most likely reduce steel output, along with U.S. producers, in an effort to halt overproduction and support steel prices. Steel also made it into the Top Five list of best-performing sectors the week before, when it was up 2.20%, although the steelers had been among the biggest losers for three consecutive weeks before that. In the Nov. 22 week, transportation issues had been the strongest performers, with an 8.54% gain.

Consumer non-durable issues rose 3.64% in the latest week, second-best in the index, buoyed by strength in retailers, such as Saks Inc., whose 8¼% notes due 2008 jumped 11 points, while apparel-maker Levi-Strauss' 11 5/8% notes due 2008 were up 8 points.

Transportation issues (up 2.24%, on strength of airline issues such as United Air Lines' 10.67% notes due 2004, up 5 points), consumer durables (up 1.90%) and business services (up 1.82%) rounded out the Top Five best performers in the latest week; transportation, as noted, was the top performer the week before, while business services were among the Bottom Five worst performers that week for a second consecutive week, losing 0.67%).

On the downside, international cable issues were the worst performer, with an 8.56% loss, dragged down by the 12-point fall NTL Communications bonds suffered after a Moody's Investors Service downgrade; it was the third consecutive week the international cablers were among the worst finishers, following losses of 1.03% the week before and 0.07% the week before that. In the week ended Nov. 22, paper and packaging issues had dropped an Index-worst 2.07%.

Domestic wireline issues were down 7.71% in the latest week, as Williams Communications Group Inc. and McLeodUSA Inc. debt fell 6-to-7 points. In the week before, the domestic wireline credits had been squarely among the top performers for a second straight week, with a 5.04% return, on top of an 8.07% gain the week before that.

Finance (down 6.91%, as Conseco debt slid on continued liquidity concerns); satellite services (down 3.49%) and energy (down 0.32%) rounded out the Bottom Five worst finishers in the latest week. Satellite services had been among the best performers a week earlier, when they were up 6.62%; energy was at that same time one of the worst laggards, down 0.75% in the week ended Nov. 22.

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