Definition
The breakeven inflation rate is the average annual inflation rate at which an ordinary Treasury bond and an inflation-protected Treasury bond (TIPS) of the same maturity would pay an investor exactly the same. It is the most widely followed market measure of inflation expectations. The 10-year breakeven is the standard version: it shows what investors, on balance, expect CPI inflation to average over the next ten years.
How it works
A regular 10-year Treasury pays a fixed nominal yield. A 10-year TIPS pays a lower real yield, but its principal is adjusted for CPI inflation. The difference between the two yields is the breakeven:
Breakeven = nominal Treasury yield − TIPS yield
If inflation turns out higher than the breakeven, the TIPS holder comes out ahead; if lower, the regular bond wins. Because investors can choose either, prices adjust until the breakeven reflects the market’s expectation, plus small premiums for inflation risk and for the fact that TIPS are traded less actively.
Example
Say the 10-year Treasury yields 4.5% and the 10-year TIPS yields 2.2%. The breakeven is 2.3%. An investor who expects inflation to average 3% a year should prefer TIPS (2.2% real + 3% inflation ≈ 5.2% total); one who expects 1.5% should prefer the regular bond. When many investors start to fear inflation, they buy TIPS and sell regular bonds, and the breakeven rises.
Breakeven inflation in history
Readings at turning points, taken from the same data as the chart above.
| Date | 10-yr breakeven | CPI inflation (actual) | What was happening |
|---|---|---|---|
| Jan 2003 | 1.75% | 2.6% | First month of the series on this site. |
| Jul 2008 | 2.44% | 5.6% | Oil price peak just before the financial crisis. |
| Dec 2008 | 0.25% | 0.1% | Record low: investors dumped TIPS for cash in the panic, so the breakeven partly reflects illiquidity rather than a forecast of deflation. |
| Feb 2016 | 1.31% | 1.0% | Oil-price slump and fears of global deflation. |
| Mar 2020 | 0.99% | 1.5% | Pandemic shock. |
| Apr 2022 | 2.88% | 8.3% | Record high, with CPI inflation above 8%. |
| Oct 2026 | 2.35% | – | Latest reading. |
Monthly values; market rates are monthly averages of daily data. Explore every month on the Inflation Expectations (10-Year) chart.
Common mistakes
- “Breakeven is a forecast of next year’s inflation.” The 10-year breakeven is an average over a decade. Even when CPI inflation was above 9% in 2022, the market expected it to come back down, so the breakeven stayed below 3%.
- Treating it as a pure forecast It also contains risk and liquidity premiums. In a crisis, when TIPS are hard to sell, breakevens can fall far below any reasonable inflation forecast.
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Breakeven inflation: questions and answers
What breakeven rate is consistent with the Fed’s 2% goal?
Roughly 2.3% to 2.5% on the 10-year breakeven. TIPS are indexed to the CPI, which tends to run a few tenths above the PCE index the Fed targets.
Are there other measures of inflation expectations?
Yes: surveys of households (such as the University of Michigan survey) and of professional forecasters, and the 5-year, 5-year-forward rate, which the Fed watches for long-run expectations.