What it is
The breakeven inflation rate represents the market's expectation of average annual inflation over a specific period, typically matching the maturity of the bonds being compared. It is calculated by subtracting the yield of a Treasury Inflation-Protected Security (TIPS) from the yield of a conventional Treasury bond of the same maturity. For example, a 5-year breakeven rate reflects the average annual CPI inflation rate the market expects over the next five years.
This rate is a key indicator for investors and policymakers, reflecting how much inflation would be needed for a TIPS bond to outperform a conventional Treasury bond. A rising breakeven rate suggests increasing market inflation expectations, which can influence Federal Reserve policy decisions regarding interest rates. It appears in news reports discussing inflation outlooks and bond market sentiment, providing a real-time gauge of market participants' views on future price changes.
Why it matters
Understanding the breakeven inflation rate helps you gauge market inflation expectations, which can inform your investment decisions and outlook on Fed policy.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice