Breakeven inflation (market expectations)
Breakeven
What it is
Difference between the yield of a nominal bond and an inflation-indexed bond (TIPS) of the same maturity. It's the IMPLIED inflation expected by the bond market for that duration — typically 10 years, or 5Y5Y forward.
How to read it
If the 10Y breakeven is at 2.5%, the market is betting on 2.5% average inflation over the next 10 years. When it diverges above 2%, market expectations are anchoring above the Fed target — a major warning signal.
Common reference points
- Disinflation expected< 1.8%
- Anchored near target1.8 – 2.5%
- Expectations unanchoring2.5 – 3.5%
- Stagflation expected> 3.5%
Orders of magnitude, not a rule: the same number does not mean the same thing from one sector to the next.
What it does not tell you
Breakeven is NOT a pure forecast — it also includes a liquidity premium (TIPS are less liquid) and an inflation risk premium. But it's the best long-term expectations barometer available.
Other measures — Macro — inflation
Educational content. Polaris is not a registered investment adviser and makes no recommendation.