Rates

Breakeven Inflation

The difference between nominal Treasury and TIPS yields at the same maturity — the market's implied average inflation rate over that horizon.

Definition

Breakeven inflation = nominal yield − TIPS yield. At 10Y maturity, it represents the average CPI inflation rate over the next decade that would equalize returns from holding TIPS vs nominal Treasuries.

Breakevens include both expected inflation and an inflation-risk premium, plus a small liquidity adjustment (TIPS are less liquid).

Why it matters

Breakevens are the cleanest market-based read on inflation expectations. The Fed monitors 5y5y forward breakevens as a credibility gauge.

Worked example

March 2022: 5y5y forward breakevens crossed 2.6%, signaling potential expectation un-anchoring. The Fed's hawkish pivot intensified shortly after.

Frequently asked

Is breakeven the same as expected inflation?⌄

Close but not identical. Breakevens include risk and liquidity premia that survey-based expectations don't.

What's a healthy breakeven level?⌄

Around 2.0–2.4% on the 10Y — consistent with the Fed's 2% PCE target (CPI runs ~30bp above PCE).

Why do breakevens move on growth shocks?⌄

Growth shocks alter expected demand, which alters expected inflation, plus they change risk premia.

What's 5y5y forward?⌄

The implied 5Y breakeven starting 5Y from now — the Fed's preferred long-run expectations gauge.

Track it on Market Ontology

breakeven-10y breakeven-5y

Related terms

Real Yield

Rates

Term Premium

Rates

Central Bank Credibility

Policy

Stagflation

Macro

Trade breakeven inflation setups in real time

Cross-domain macro intelligence. Policy to prices. 7-day free trial.

Get Started