You are working at a large pension fund. The CIO tells you that there will be a strong deflationary pulse in the US and global economy. The CIO asks you to pick two investments from the following choices: 2 year treasury bonds, 30 year treasury bonds, high yield bonds, gold etf, emerging markets equities ETF, a commodity etf, or a short S&P 500 fund. You also have the choice of etfs for equities from the following S&P 500 sectors energy, financials, staples, industrials, utilities, technology, timber reits, steel stocks, mining stocks and agricultural service stocks

Question:

You notice that the yield curve has started to flatten. Which investment from the prior list would you pick based on this signal? Justify your response.