Global bond investors are betting against the increasingly aggressive tactics taken by central banks in the chase for economic growth, by turning to strategies that profit when inflation fails to pick up. In the options market, trades that make money if inflation drops below 1% — and even below 0% — have increased. Money managers are buying into government debt, undeterred by negative yields. They are also holding cash, which offers flexibility in the event of economic contraction. These so-called deflation trades may prove even more popular around one of the first major set-piece data releases of the fourth quarter: Friday’s U.S. jobs report. That could set an uneasy tone for markets into the latter part of the year, with no shortage of risk factors ahead. Just Tuesday, data showed a slowdown in euro-area inflation and the first drop in consumer prices in South Korea. “The first sign of a change in the labor market, we and the market are going to scream recession,” said Russell Silberston, a money manager at Investec Asset Management, which is overweight cash. “We are running very light risk because the path is so unclear.” In Europe, a gauge of where markets expect the pace… Read full this story
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