(Bloomberg) -- Mutual fund giant Fidelity Investments is warning deflationary pressures in the U.S. are building.

The Federal Reserve will raise interest rates slowly as a result, according to the Boston-based investment company, which has $2.1 trillion in assets. Investors should own high-quality bonds to diversify their holdings amid a stock-market rout, Fidelity said.

A gauge of inflation expectations globally approached a five-year low, driven by falling commodity prices. The Bloomberg Commodity Index extended its decline Wednesday to the lowest level since 1999. At the same time, concern economic growth is slowing in China, the world’s second-largest economy, drove a week-long selloff in stocks. The MSCI All Country World Index of shares has slumped 7% since Aug. 18.

“We’re seeing a deflationary impulse out of these lower commodity prices and deflationary pressures from China,” Dirk Hofschire, a member of Fidelity’s asset allocation research group, said in a presentation on the company’s website. “It’ll probably prompt the Fed to be even less aggressive in its tightening cycle than it was already inclined to be.”

The benchmark U.S. 10-year note yield fell three basis points to 2.15% as of 1:12 p.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 2% security due in August 2025 advanced 9/32, or $2.81 per $1,000 face amount, to 98 23/32.

‘EQUITY RISK’

The extra yield on nominal bonds over inflation-linked securities globally, a gauge of trader expectations for consumer prices, was about 99 basis points, based on Bank of America Merrill Lynch indexes. The spread was within a basis point of its lowest level since September 2010. Deflation, the opposite of inflation, is a general decline in prices.

Treasuries spent this week moving inversely to stocks, as investors sought the safest securities while equities tumbled.

It’s important to hold some high-quality bonds to “diversify the equity risk,” Hofschire said.

Investors reduced forecasts for the Fed to raise interest rates this year amid this month’s slide in commodity and share prices, based on trading in futures contracts. The odds of an increase by the central bank’s Dec. 15-16 meeting are 49%, falling from 70% at the end of July. The figures are based on the assumption that the effective fed funds rate will average 0.375% after the first increase.

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