Mutual funds with exposure to municipal bonds backed by airline companies have seen dismal returns, as the war further weakens the airline industry, which still has not recovered from the 9/11 terrorism attack, The Wall Street Journal reports.

Although few bond funds have heavily concentrated investments in airline-backed muni bonds, the loss could be big, WSJ reports.

The $484 million Oppenheimer Rchester National Municipals fund that had 20.7% of its assets in airline-backed debt by the end of this January, for example, has fallen 10.21% so far this year. Eaton Vance National Municipals Fund, with 5% assets invested in airline-backed debt at the end of last year, had a minus 2.1% return through Tuesday.

Some municipal bonds backed by Delta Air Lines have lost half their market value so far this year, while some backed by AMR Corp.’s American Airlines have declined as much as 75%, according to Standard & Poor’s Securities Evaluations. Municipal bonds on average are down less than a half percent so far this year, according to Lipper Inc.

There are about $8.8 billion of airline-backed special-facility municipal bonds outstanding, according to Bear, Stearns & Co. The bonds are issued by municipal airport authorities and financially backed by a particular airline that uses an airport terminal or other airport facility.

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The staff of Mutual Fund Market News ("MFMN") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MFMN, and have not prepared, sponsored, endorsed, or approved these summaries.

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