US insurers and pension funds seek to hedge deflation

Extra inflation hedging demand driving split between derivatives and cash market pricing

Equity-heavy insurers and pension funds in the US are ramping up their inflation hedging programmes as fear grows over the negative impact a deflationary scenario would have on this asset allocation strategy, according to a senior figure in the New York office of Deutsche Bank. This is driving options markets to overvalue the risk of deflation relative to US treasury inflation-protected securities (Tips).

Riddhi Barman, head of rates structuring for Deutsche Bank in the US, says insurers' and

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