10 Year Breakeven Rate

The 10 year breakeven rate measures the difference or gap between 10 year Treasury Bond and Treasury Inflation Protected Securities (TIPS).  The 10 year breakeven rate serves as an indication of the markets’ inflation expectations over the 10 year horizon.  The spread or gap between 10 year Treasuries and TIPS will be lower if fixed income traders’ inflation expectations are lower.  Higher or increasing spreads represent higher or increasing inflation expectations.  Lower spreads such as those that occurred during the recession in 2009 represent deflation expectations and may represent a buying opportunity for TIPS if the recession does not result in a period of long-term deflation.


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