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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