B of A High Yield Large-Cap Index off 0.12%; year-to-date gain eases to 3.65%

By Paul Deckelman

New York, Jan. 28- The Banc of America High Yield Large Cap Index eased 0.12% in the week ended last Thursday (Jan. 23), the first week in six that the market gauge has failed to show an advance. In the previous week (ended Jan. 16), the index rose 0.22%, its fifth straight gain.

The year-to-date return declined slightly in the latest week, to 3.65% from 3.77% the week before. The cumulative return was given a big boost by the 3.43% gain seen in the first full trading week of the year, the week ending Jan. 9.

In the latest week, the index's spread over comparable Treasury issues widened out to 897 basis points from 877 the week before, while its yield to worst crept up to 12.05% from 11.93%.

B of A's somewhat broader and more representative Banc of America High Yield Broad Market Index was also slightly on the downside in the most recent week, posting a nearly flat return of 0.02%, down from 0.45% in the week ended Jan. 16. The HY Broad Market Index's year-to-date return was 2.94%, little changed from 2.96% the prior week. Its spread over Treasuries was 911 basis points and its yield-to-worst was 12.03%, up from 891 basis points and 11.92%, respectively.

(The High Yield Large Cap Index, representing the most liquid portion of the high-yield world, tracks approximately 400 issues of $300 million or more, having a total market value of about $180 billion. The High Yield Broad Market Index tracks approximately 1,400 issues of $100 million or more, having a total market value of about $340 billion. B of A sees both as reliable proxies for the approximately $600 billion high yield universe.)

Even with the modest downturn in the latest week - which the B of A analysts noted coincided with the posting of a relatively small outflow of $81.4 million in high-yield mutual funds, a key measure of junk market liquidity - both of the indexes remain solidly positive for the year so far, mostly coasting on the strong returns seen in the first week of the year. By way of contrast, the HY Large Cap Index finished 2002 down 2.89%, while the HY Broad Market Index posted a 1.55% gain in 2002.

Even though 17 of the 27 industry sectors into which Banc of America divides its HY Broad Market Index were gainers on the week, the Broad Market Index - and the Large Cap as well - were dragged lower for the week by the poor showing of the transportation sector, laden with airline bonds.

Transportation lost 3.13%, with Delta Airlines' 8.3% notes due 2029 dropping 5.5 points during the week to end at around 63 and Northwest Airlines' 9 7/8% notes due 2007 losing three points to close at 69, while some Northwest issues lost as much as six points and some Deltas seven, after Washington said it would try to block the planned marketing alliance of Delta, Northwest and Continental Airlines, calling it unfair competition.

International cable operators (down 1.52% on weakness in Telewest Communications debt), PCS/cellular (down 1.04%), paper & packaging (off 0.93%) and business services (0.53% lower) rounded out the Bottom Five list of the weakest-performing sectors in the most recent week.

On the upside, North American cable, the previous week's biggest loser (down 1.98%) went from worst to first with an index-best 1.25% gain in the most recent week, largely powered by the rebound in Charter Communications Holdings LLC bonds from their recent lows; Charter's zero-coupon/11.75% notes due 2011 gained three points to close at 30.

Technology (up 1.14% on Lucent Technologies Inc.'s rise after better-than-expected quarterly results), advertising-dependent media (up 0.58%), satellite services (up 0.53%) and publishing (0.52% better) rounded out the Top Five list of the best-performing sector in the most recent week.

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