Although North America remains fairly strong, the eurozone’s economy has only been growing about 1% annually, so it wouldn’t take much to tip the region back into a recession. That  seems unlikely now that the European Central Bank has launched its program of quantitative easing and a third Greek bailout has bought Europe more time. But the region still suffers from pockets of unsustainably high debt that has yet to be addressed and, if those dominos start to fall, they could bring on another recession and deflation.

Further east, growth in China’s gross domestic product has been slowing sharply of late, adding more pressure to the world economy. And Japan is still Japan, seemingly always one step away from disaster.

These weak spots prompted the International Monetary Fund to downgrade its 2015 global growth forecast yet again to just 3.3%. That’s the weakest rate since the financial crisis and shows that, although things are slowly improving, the global economy is still fragile.

Insurance for Troubled Times

In the event of a deflationary incident, bonds can be your best friend. If you buy them as prices are falling and choose high-quality issuers that would survive relatively unscathed, bonds will continue to pay interest at a rate fixed before the crisis. That makes those bonds much more valuable.

Government bonds are most likely to maintain their payments in a crisis. The problem for U.S. investors of exchange-traded bond funds is that many include heavy weightings in potentially troubled economies, especially Japan. In a crisis U.S. government bonds offer the safest haven.

There’s absolutely nothing sexy about iShares Core U.S. Treasury Bond (NYSE: GOVT), except that it has had some epic run-ups in troubled times.. The fund has the same AAA seal of approval as the U.S. government and a moderate duration— a measure of interest rate sensitivity—of 5.4, which means for every 1% that rates rise you can expect the fund to decline about 5.4%. So it sits in the sweet spot of Treasury bonds that get bought up in a panic.

The fund is also quite cheap, with an annual expense ratio of 0.15%. Plus, it pays a higher yield, currently 1.2%, than many of the potentially troubled international funds.  Although it offers the best deflation insurance you can find, the fund is a great core portfolio holding under any economic conditions. Buy iShares Core U.S. Treasury Bond under $26.50.

Negative Risk

A more interesting deflationary hedge, albeit one with slightly higher risk, is iShares Utilities Bonds (NYSE: AMPS).

The fund holds a basket of 168 bonds mostly issued by U.S. electric utility companies, which are fairly deflation-proof. Given the expense of developing and maintaining infrastructure, most utilities in the United States are monopolies. Although regulators can push rates down, they rarely move in sync with overall prices, so few industries enjoy as much pricing power as utilities. Consequently, their payouts—especially on their bonds—are sacrosanct.

With an expense ratio of 0.30%, the fund costs more than the Core Treasury Bond, but it also pays a much higher yield of 3.1% monthly. Another attractive quality: its beta of -0.15.That negative beta means when the broader market declines you can expect the value of this fund to increase.

The one drawback is that the fund is somewhat illiquid, as it caters mostly to a subset of investors interested only in utility bonds. If you add it to your holdings, use a limit order because the fund trades in high volumes and appreciates the most on days when the news seems particularly grim. Buy iShares Utilities Bond under $53.

Deflation-Resistant Sectors

This equity-based deflation hedge currently yields 2.2%.Vanguard Dividend Appreciation ETF (NYSE: VIG) tracks the NASDAQ U.S. Dividend Achievers Select Index, which consists of stocks that increased their dividends annually for at least a decade and met other quality and liquidity screens. Given the stringent requirements for inclusion in the index, it mostly consists of high-quality deflation-resistant sectors such as consumer staples (24.5% of assets), healthcare (14.8%) and utilities (2.1%). Top holdings in those sectors include Johnson & Johnson, Coca-Cola and Procter & Gamble.

There is also a decent weighting to technology, at 13.6% of assets, which many analysts argue should stand up well in a deflationary environment as the sector is no stranger to falling prices. Although that theory hasn’t been put to the test, it makes a sense. Top tech holdings are Microsoft and IBM.

With a basket of about 185 stocks in all, the fund is well-diversified and also incredibly cheap; its expense ratio is just 0.10%. Buy Vanguard Dividend Appreciation ETF  up to $85.