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Short Squeeze Bumps Up American Airlines Bonds

American Airlines' bonds jumped eight to 10 points last week as short sellers clamored to buy back bonds.

American Airlines' bonds jumped eight to 10 points last week as short sellers clamored to buy back bonds. The company's 9% '12 bonds were up eight points to trade at 86, continuing a climb that started in November, when they traded as low as 69. Analysts attributed falling fuel prices and positive industry forecasts in 2006 for a rise in the value of American Airlines debt ­ which in turn sent short sellers scrambling to cover positions.

"Finding bonds to borrow is hard because there are not a lot that want to lend securities," said Roger King, an airline analyst at CreditSights. "As prices have gone up, people have gone into the open market to buy bonds and deliver them back. It has probably been hard to buy them." A trader concurred, adding that there is only a small amount of unsecured paper in the market.

A spokesman for American Airlines said the company is working to increase revenue and decrease costs outside of bankruptcy.

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