That’s the notional value of long-term derivative contracts tied to the U.S.consumer price index that Pimco’s mutual funds entered into during the fi rsthalf of this year, according to a regulatory fi ling. The funds received $70.5million in up-front premiums under these contracts, known as infl ationfl oors, in return for agreeing to pay investors should prices decline in the 10years ending in 2020.

“We think the possibility that the U.S. goes 10 years with stagnant or fallingprices is remote,” Mihir Worah, the head of Pimco’s real return portfolio management team, said in an e-mailed response to questions. “The options were priced at rich levels to the underlying” risk, added Worah, whose funds invest in Treasury inflation protected securities. […]