Airline bonds are staging their biggest rally in nine years as demand for travel rises and carriers emerge from bankruptcy with less debt.
Bonds sold by airlines with junk ratings such as AMR Corp.’s American Airlines and Continental Airlines Inc. yielded an average 8.6 percent, the lowest since April 1999 and down from 9.72 percent at year-end, Merrill Lynch & Co. data show. The airlines’ securities returned 9.1 percent, the best since Merrill began tracking the industry. The market for all high-yield, high-risk bonds rose 2.9 percent so far this year.
Carriers are filling more seats than at any time since World War II, fuel costs fell 23 percent in the past six months and the amount of bonds available to investors is declining. The extra yield, or spread, that junk-rated airline bonds offer compared with U.S. government debt narrowed to 427 basis points, the least since April 2001, Merrill data show. Since year-end, the spread declined 196 basis points.
