Pimco Bearish on the Prospect of Long Term Deflation

Pacific Investment Management Company (Pimco)--the large asset manager headed by Bill Gross--has taken a position that reflects skepticism of the possibility of long-term deflation in the United States.

During the first half of 2010, Pimco entered into derivative contracts with a notional value of $8.1 billion. 

This derivatives contracts are inflation floors that are tied to the U.S. consumer price index.  Pimco will pay-out on the contracts if U.S. prices decline in the 10 years ending in 2020.

Pimco received $70.5 million in premiums for taking the position.

The prices for deflation protection in the derivatives markets have been "rich" throughout much of 2010, reflecting concerns about a lackluster economy and falling prices.

Source: Bloomberg

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