Overseas Travel Increases... Surge in US Airport Bond Issuance

Airport Bond Issuance Scale Up 33% This Year
Funds to Be Used for Various Infrastructure Development
Airport Bond Investors Enjoy Strong Returns

Bond issuance by U.S. aviation authorities is increasing. This is to use funds for building various infrastructures to handle the surge in travel demand following the end of the COVID-19 pandemic.

On the 26th (local time), U.S. investment bank (IB) Ramirez & Company predicted that the scale of U.S. airport bond issuance this year will reach $21 billion, a 33.8% increase compared to last year ($15.7 billion).

This is attributed to the fact that the number of international travelers has reached an all-time high since the COVID-19 pandemic. According to CreditSights, the number of passengers carried by U.S. airlines last year was 942 million, which is 2% higher than the record set in 2019, the year before the pandemic. During the COVID-19 period when air routes were blocked, airports were unable to invest in various infrastructure facilities such as runways and terminals, and now they are issuing large-scale bonds to meet travel demand.

Additionally, the Federal Reserve (Fed) is expected to cut interest rates this year, which is also cited as a reason. It is said that bond issuance is being expedited to reduce borrowing costs. In the first half of last year, airport bond sales plummeted to about $3 billion, less than one-third compared to the same period the previous year, due to the impact of high interest rates.

Airport bond investment yields are also high. According to the ICE Bank of America (BoA) U.S. Airport Securities Index, airport bond yields last year recorded 7.4%, the highest since 2019.

However, some say that airport bond investment is reaching its final stage. As airport profitability has improved to previous levels, credit ratings have also improved. The international credit rating agency Fitch upgraded the special facility bonds of Miami International Airport and New York's John F. Kennedy International Airport to A+ and BBB+, respectively, last year.

As credit ratings rise, the possibility of principal loss decreases, so bond investment returns inevitably decline. In fact, the spreads on recent airport bonds are narrowing. A spread refers to the additional interest rate added to the benchmark rate according to credit rating when issuing bonds. Pat Ruby, head of municipal strategy at CreditSights, forecasted in an investment memo that "due to strong demand this year, spreads may narrow further."

This content was produced with the assistance of AI translation services.