What happened
Shares of cruise line operator Carnival (CCL -0.86%) have fallen 3.1% in trading on Thursday as a sell-off in entertainment stocks continues. Shares are down 2.2% at 2 p.m. EDT and have been bouncing lower all day.
So what
A steady increase in interest rates is likely giving investors in cruise line stocks the most heartburn today. According to Bloomberg, 10-year government bond yields are up a basis point in the U.S. today, but 7 basis points in Brazil and between 1 and 3 basis points across Europe, the Middle East, and Asia.
Rates have been rising sharply over the past month; eventually that will lead to higher rates on corporate debt, like Carnival's. And that's where the company's debt level gets concerning.
As interest rates rise, Carnival's debt cost could go up, putting additional pressure on its operations. And with the travel industry recovery already sputtering, it's not surprising to see shares trading lower today.
Now what
It's already been a volatile week for cruise line stocks. On Monday, shares jumped as the market rose, but today there's a sell-off across the board. I think the volatility will continue as the economy picks back up; cruise lines like Carnival have a long way to go before becoming financially stable. The company has said it burned $510 million in cash in the third quarter of 2021 and, with ships slowly being put back into use, the cash burn will continue.
Rising interest rates could be bad news for cruise line stocks that are already struggling with weak operations. If debt levels continue to rise, I wouldn't be shocked to see Carnival's stock continue to fall.