The Bond Market's Expectations for Inflation

The breakeven rate reflects the bond market’s expectation for future inflation. While breakeven rates cannot accurately predict what will occur in the future, they can provide insights.

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The breakeven rate reflects the bond market’s expectation for future inflation. The St. Louis Federal Reserve makes two breakeven rates available in its FRED online database: the five-year and the 10-year. For these two time frames, the breakeven rates are the difference between the yields of nominal (fixed-income) Treasury bonds and Treasury inflation-protected securities (TIPS) bonds, each with maturities of five or 10 years, respectively.

As of mid-June 2021, expectations for future inflation were pulling back after a big upward run. The prevailing breakeven rates can be found at https://fred.stlouisfed.org/categories/33446.

Breakeven rates provide insights but cannot accurately predict what will occur in the future. Like any market measure, breakeven rates are subject to change as new economic data is released.

FIGURE 1 Five-Year Breakeven Rate