Deflation fears hit options


Falling house and oil prices - along with interest rate and tax cuts - are putting deflation on the agenda. That, in turn, has created a thumping headache for banks that have sold inflation-linked notes containing floors that protect investors against negative inflation. At the time the structured notes were sold, the value of that protection was deemed insignificant, but it skyrocketed in October, as sliding inflation forecasts sparked panic among largely unhedged issuers.

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