SHORT ANSWER
The core idea
Deflation can increase the real purchasing power of fixed nominal bond payments and may lead markets to expect lower policy rates, both of which can support high-quality bond prices.
THE MECHANISM
What is happening underneath
The effect is less favorable when deflation is accompanied by severe credit stress because corporate or weaker sovereign borrowers may face falling revenues and greater real debt burdens.
MARKET INTERPRETATION
How investors should read it
Nominal government bonds and risky credit can therefore react very differently to the same deflationary environment.
BONDSTATS TAKEAWAY
The same market move can carry different information depending on which maturity, issuer and risk premium is changing. Read the question together with the underlying concepts rather than treating one price move as a universal signal.
RELATED CONCEPTS
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