Insightful question. The ‘deflation floor’ of Linkers and Tips.
Copy of LinkedIN post, 2020
Insightful question. The ‘deflation floor’ of Linkers and Tips. Does our method have this artificial floor, does the issuer of debt suffer penalty if deflation is observed? Answer: No. the outstanding principal could decrease in a deflationary cycle. No, the lender does not suffer loss of constant purchasing power, the number of units received may decline, but with a known purchasing power.
Yes, the structure of Linkers or Tips is not acceptable to non sovereign issuers. The accretion of debt and the ‘deflation floor’ are very high hurdles to clear.
For the investor utilizing our method, deflation or inflation, you receive the known,stable, fixed purchasing power. A foundation for efficient allocation in search of alpha.