Key points
- Calculated as: Nominal yield - TIPS yield.
- Shows what inflation rate makes you indifferent.
- Fed watches breakevens for inflation expectations.
Example
If 5Y UST is 4.2% and 5Y TIPS is 2.0%, breakeven is 2.2%; a move to 2.7% signals rising long-run inflation pricing.
In history
5-year breakevens spiked above 3.5% in March 2022, then slid toward 2.1% by late 2023 as inflation expectations cooled.
Related terms