The debate over whether government stimulus poses an inflation threat has given way to new worries a possible decline in prices, demand and even wages caused by deflation.

For most Americans, deflation is the stuff of history or case studies overseas. There has not been a major deflationary period in the U.S. since the Great Depression.

It could be about time. As the market has turned flat and consumer spending has stalled, more economists and officials have begun to consider the likelihood and consequences of deflation. James Bullard, the president of the Federal Reserve Bank of St. Louis, has been vocal about the threat of the economy falling into a cycle of waning demand, wages and prices, akin to that of Japan in the 1990s.

Not everyone is convinced. Fed Chairman Ben Bernanke dismissed the threat in a speech Friday. Falling into deflation is not a significant risk for the United States at this time, but that is true in part because the public understands that the Federal Reserve will be vigilant and proactive in addressing significant further disinflation, he said in a statement.

Still, many investors who never considered such an environment have at least begun planning for one. Others, including Pimco s Bill Gross, have already adjusted their asset allocations for price declines.

Investment strategies for a deflationary period depend on how low prices go, says Jim Paulsen, chief investment strategist, Wells Capital Management.

Mild deflation can be bullish and has driven the U.S. economy to booms at times, he says. Investors might flock to riskier assets during booms led by productivity revolutions the Industrial Revolution or information technology when prices can fall quickly because productivity is growing fast, Paulsen says.

However, if companies can t keep up with a decline in top-line prices through increased productivity, then destructive deflation sets in. When the party is over, companies have no profitability, they fall into themselves, and it becomes a vicious cycle, Paulsen says.

For this week s Fund Screen we looked areas industry watchers say may offer a cozy nook to safeguard against deflation. They pointed to funds with exposure to four areas: municipal bonds, money market funds, Treasuries and emerging market debt. Below are the top three performing municipal bond, long and intermediate government bond and emerging market debt funds for the year to date, which carry no loads, are open to new investment and were in the top 10% for their category by trailing three and five-year returns. In addition, we've listed the top ten money market funds by trailing 5-year returns, have a minimum initial purchase of less than $10,000 and have beat their category average year to date and for the past three and five year periods.

First, let s look at municipal bonds, which should increase in value as other interest rates decrease in a deflationary environment. They are free from federal taxes, and buyers who live in the issuing state also may get a break on state taxes. However, without diversification, holders run the risk of the municipality hitting financial problems. National municipal bond funds offer less of a tax advantage, but more safety.

Many municipal bonds would not perform well in destructive, run-for-the-hills deflation, because issuers would have more trouble making payments. However, in deflation with sluggish growth, investors would probably do well in high quality municipals, Paulsen says.

The classic deflation hedge is a position in government or high-quality corporate bonds, especially longer term. Because longer- term bonds have a higher yield as overall interest rates decrease, a nominal yield is effectively worth more, says Adam Leone, an advisor with Modera Wealth Management. On the other hand, many investors don t want to bet the farm on deflation, so they buy Treasury Inflation Protected Securities, or TIPS, more volatile bonds that hold their value if deflation turns to inflation.

Deflation tends to lift a currency s value, so just holding dollar-denominated assets, like money market funds, is another hedging strategy, says Jack Ablin, chief investment officer, Harris Private Bank. Investors may earn next to nothing, but their cash gains more purchasing power in a deflationary environment.

Another way to hedge against deflation is to invest in foreign debt. Ablin says emerging market economies would be intriguing in a deflationary environment because they would have inflation and could let their currencies rise a bit to rebalance the world a little, he says, adding that could be a home run.

Investors looking to bet on deflation with equities should stick with high-quality dividend paying companies that can maintain pricing power, capitalize and gain market share in a tough environment, Leone says.

The Criteria: The funds on the table have a minimum investment of $10,000 or less. They're open to new money and charge an annual expense ratio no greater than 1.25%. In addition, their performance track records were in the top 10% year-to-date and over the trailing three and five-year periods for their peer group, except for the money market funds, which are ranked by five-year return and beat their category average year-to-date and for the past three and five-year periods. As usual, we did not include load funds.

Emerging Market Bond Funds

Fund	Ticker	Net Assets (Millions)	YTD Return	1 Year Return	5 Year Return	Expense Ratio
TCW Emerging Markets Income I	TGEIX	567	15.57473	25.97451	11.15216	1.17
Fidelity New Markets Income	FNMIX	364.9	11.05086	19.44772	10.25712	0.9
Fidelity Advisor Emerging Markets Inc I	FMKIX	836.4	10.83035	19.00517	10.30235	0.95

Intermediate Government Bond Funds

Fund	Ticker	Net Assets (Millions)	YTD Return	1 Year Return	5 Year Return	Expense Ratio
Vanguard Interm-Term Treasury Adm	VFIUX	6683.1	9.73026	10.14319	6.96389	0.12
T. Rowe Price US Treasury Interm	PRTIX	504.3	9.65341	9.81285	6.84211	0.52
Managed Account US Mortgage	MSUMX	131.1	9.21902	12.91583	7.19916	0

Long Government Bond Funds

Fund	Ticker	Net Assets (Millions)	YTD Return	1 Year Return	5 Year Return	Expense Ratio
Delaware Extended Duration Bond Inst	DEEIX	364.5	17.18803	24.68229	8.91738	0.99

Muni National Long-Term Bond Funds

Fund	Ticker	Net Assets (Millions)	YTD Return	1 Year Return	5 Year Return	Expense Ratio
Fidelity Tax-Free Bond	FTABX	2051	6.80835	10.30244	4.93975	0.25
Elfun Tax-Exempt Income	ELFTX	1808.1	6.62565	10.26072	5.11134	0.18
DWS Managed Municipal Bonds S	SCMBX	4208.6	6.39674	11.05162	5.26312	0.55

Money Market Funds

Fund	Ticker	Net Assets (Millions)	YTD Return	1 Year Return	5 Year Return	Expense Ratio
Source: Morningstar. Note: All returns through Aug. 25. Money market funds limited to assets greater than $50MM
DWS Institutional Daily Assets	DAFXX	9919.4	0.15472	0.24835	3.11416	0.12
Western Asset Instl Liqd Rsrvs SVB I	SVIXX	6840.4	0.06899	0.12171	3.04288	0.3
Invesco Treasurer's Ser Tr Prem Inv	IMRXX	4079.2	0.05722	0.10311	2.99251	0.21
Wells Fargo Advantage Money Market Trust	WMMXX	2332.6	0.11339	0.17158	2.97716	0.24
SEI Daily Income Money Market A	TCMXX	442.3	0.07683	0.12261	2.97388	0.24
BNY Mellon Money Market M	MLMXX	1124.9	0.03115	0.07225	2.94545	0.33
BlackRock Liquidity TempFund Adm	BTMXX	60681.6	0.03224	0.06057	2.92672	0.31
SEI Daily Income Prime Obligation A	TCPXX	4476.5	0.06446	0.10724	2.92503	0.23
Vanguard Prime Money Market Inv	VMMXX	106920.9	0.0336	0.08636	2.9121	0.28
HighMark Diversified Money Market Fid	HMDXX	2565.6	0.10815	0.23514	2.89718	0.58