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).
Public research record
Research framework · page evidenceCompleted application: Breakeven Inflation
Breakevens are the cleanest market-based read on inflation expectations. The Fed monitors 5y5y forward breakevens as a credibility gauge.
| Type | Claim | Scope |
|---|---|---|
| Release fact | The difference between nominal Treasury and TIPS yields at the same maturity — the market's implied average inflation rate over that horizon. | Rates |
| Release fact | March 2022: 5y5y forward breakevens crossed 2.6%, signaling potential expectation un-anchoring. The Fed's hawkish pivot intensified shortly after. | Published example |
Countercase, invalidators, and sources
The relationship is conditional: another driver can dominate the same asset over the selected horizon.
- · The underlying observation changes materially.
- · The selected asset has no measurable exposure to this mechanism.
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.