Inflexion point?, page-61

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Galba

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30/05/18

13:13

Post #: 33374764
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Originally posted by Transversal ↑

Wow, the 30-year AUD government bond yield went down to 3.15% earlier this morning; if I am not mistaken, this is a new all-time low. The 2040 AUD linker yield is also sitting close to its previous all-time lows, at 0.72%.

Yes, there is the Italian mini-meltdown unfolding. And it is a serious issue, I’m no downplayer of that [*], partly because I do not see a painless way out of the local political crisis.

But it just shows that, whenever bond yields move a bit too far ahead of inflation, globally, up pops some issue, more or less serious, to promptly send them back down.

First it was the US/China “trade war” fears, then it was North Korea, now it’s Italy, next time who knows. But I think it is getting increasingly clear that global yields cannot, in absence of a commensurate rise in inflation, sustain a move up for very long.

In other words, global real yields are not going up.

Back to TCL, once the upcoming 28c distribution is stripped out, and assuming a 61.5c FCF/share for FY19, I see the securities presently trading at a 5.35% FY19 FCF yield, or 271 bps above the prevailing 10-year nominal bond yield (if that is an easier reference for readers). From memory, I think this is pretty much as good as it has ever been.

IMHO & DYOR

[*]: For context, it has been estimated that Italian Government bonds (BTPs) account for nearly 20% of Italian bank assets (see for instance https://www.bis.org/bcbs/publ/d425.pdf); therefore, a prolonged meltdown in BTP prices could alone suffice to force a recapitalisation of the whole Italian banking system. And this is before even starting to factor in all cross-country exposures.

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Thanks for this update. For what it is worth @Transversal as I note you also hold SYD. How do you think the relative value of TCL stacks up compared with Sydney Airports?
Appreciate any link if you don't want to take the debate away from TCL.

TCL Price at posting: $11.82 Sentiment: None Disclosure: Held
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