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Airline, cruise line bonds underperform on renewed COVID concerns


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Airline, cruise line bonds underperform on renewed COVID concerns

Airline bonds slumped today as more countries moved to impose fresh travel restrictions to stem the spread of a new COVID strain discovered in the U.K. The news squashed optimism regarding the $15 billion of federal aid the industry stands to gain from the $900 billion stimulus bill that is making its way through the U.S. Congress.

The latest developments snapped multi-week winning streaks for many airline bonds, which had surged on November's positive vaccine developments, and as the first shots were administered last week. Many extended generic broad-market losses of 0.5-0.75 points on the session, albeit in light, pre-holiday trading.

American Airlines Group Inc. bonds slipped 0.75-3.375 points on the day, with the most liquid 11.75% secured notes due 2025 moving 1.25 points lower, to 113.5, after last week establishing a new post-slump high of 115.25. Longer-dated Delta Air Lines Inc. paper also erased recent gains, the 3.75% notes due 2029 slipping to 95.25 after spiking to 98 on Dec. 15. The notes bottomed out around 68 in May. Bonds backing United Airlines Holdings Inc. were down about a point, with the 4.875% senior unsecured notes due 2025 changing hands at 97 on the lows, from high trades at 99.5 last week and March trades just north of 50.

Cruise line bonds suffered similar losses today on the prospect of their ships remaining docked beyond spring 2021. Operators were ineligible for either grants or loans through previous stimulus plans and are not featured in the package under discussion. Most have stayed afloat by issuing debt or equity, facilitated by the Federal Reserve’s decision to start buying corporate bonds via its Secondary Market Corporate Credit Facility, or SMCCF.

Just last week, NCL Corp. Ltd. inked $850 million of tightly priced 5.25-year senior notes that traded up at 103.625 before slipping back to low trades at 102.75 today.

Carnival Corp. & PLC's $775 million of 10.5% second-priority secured bonds, part of a cross-border offering inked in July, were down a point from Friday’s close, at 116.25. Vaccine optimism lifted the notes off October lows of around 107/108. Carnival followed up late last month with a $1.45 billion offering of 7.625% senior unsecured notes, which tested 109 last week on vaccine euphoria, but were changing hands this afternoon at 107.