Where should you invest in a deflationary environment?

James Foster, co-manager, the Artemis Strategic Bond fund In a deflationary environment, the most obvious investment is bonds. Government bonds, in particular, should perform very well as their value will increase as deflation inflates their value. Normally, inflation erodes a bond's value. But in a deflationary environment, the opposite is true and their returns will be enhanced. The problem is the yield on government bonds has fallen the world over to lows not seen for generations. The market is already discounting the prospect of some deflation coming into the system. In practice, th...