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The Bond Bubble And the Death of the Disinflation Trade

  • Scott Carmack
  • Jul 13, 2016
  • 1 min read

Updated: Mar 27, 2024




The disinflation trade has been profitable for the last thirty-four years as inflation and interest rates persistently moved lower, but secular demographic shifts in the United States indicate that change is on the way. Anecdotal evidence is already indicating accelerating wage growth and prices. Just last week, Jamie Dimon presented his plans to raise wages for their lowest paid employees. Starbucks, meanwhile, raised wages, and then almost simultaneously rose prices in an attempt to offset the impact to its bottom-line.

 
 

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Holbrook Structured Income Fund

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Investments in mutual funds involve risk including possible loss of principal. There is no guarantee that any investment strategy will achieve its objectives, generate profits, or avoid losses. The Fund invests in closed end investment companies or funds. The shares of many closed end funds, after their initial public offering, frequently trade at a price per share that is less than the net asset value per share, the difference representing the “market discount” of such shares.

 

The Fund may be adversely affected by new (or revised) laws or regulations that may be imposed by government regulators or self-regulatory organizations that supervise the financial markets. CLO debt securities are limited recourse obligations of their issuers and may be subject to redemption. Holders of the CLO debt being redeemed will be repaid earlier than the stated maturity of the debt. The timing of redemptions may adversely affect the returns on CLO debt. The CLO manager may not find suitable assets in which to invest during the Reinvestment Period or to replace assets that the manager has determined are no longer suitable for investment.

 

The value of securities issued by the U.S. Government generally fluctuates in response to inflationary concerns and may differ in their interest rates, maturities, times of issuance and other characteristics.

 

The risk that the Fund could lose money if the issuer or guarantor of a fixed income security is unwilling or unable to make timely payments to meet its contractual obligations. The risk that foreign currencies will decline in value relative to the U.S. dollar and adversely affect the value of the Fund’s investments in foreign (non-U.S.) currencies. The derivative instruments in which the Fund may invest for hedging purposes may be more volatile than other instruments.

 

The Fund invests in fixed income securities or derivatives, the value of your investment in the Fund will fluctuate with changes in interest rates. These risks could affect the value of a particular investment by the Fund. Investment in or exposure to high yield (lower rated) debt instruments (also known as “junk bonds”) may involve greater levels of interest rate, credit, liquidity and valuation risk than for higher rated instruments. When the Fund invests in other investment companies, including ETFs, it will bear additional expenses.

 

The risk that investment strategies employed by the Fund’s adviser in selecting investments for the Fund may not result in an increase in the value of your investment. The Adviser’s use of computer trading modeling systems may perform differently than expected as a result of the factors used in the models.

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ABS may be more sensitive to changes in interest rates and may results in prepayments which can include the possibility that securities with stated interest rates may have the principal prepaid earlier than expected, which may occur when interest rates may have the principal prepaid earlier than expected, which may occur when interest rates decline. Rates of prepayment faster or slower than expected could reduce the Fund's
yield, increase the volatility of the Fund ad/or cause a decline in NAV.

The Holbrook Income Fund is distributed by Northern Lights Distributors, LLC, member FINRA/SIPC. Holbrook Holdings Inc. is not affiliated with Northern Lights, Distributors, LLC.

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