Breakeven Inflation Rate
Computes the breakeven inflation embedded in the gap between a nominal bond and an inflation-linked bond, using the exact Fisher equation: (1 + nominal)/(1 + real) − 1. It's the inflation rate that would equalize the return of the two instruments — above it, the linker wins; below it, the nominal one. The exact version avoids the error of the simple approximation (nominal − real), which overstates inflation by a few basis points. Enter the nominal yield and the real yield.
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Breakeven Inflation Rate
Computes the breakeven inflation embedded in the gap between a nominal bond and an inflation-linked bond, using the exact Fisher equation: (1 + nominal)/(1 + real) − 1. It's the inflation rate that would equalize the return of the two instruments — above it, the linker wins; below it, the nominal one. The exact version avoids the error of the simple approximation (nominal − real), which overstates inflation by a few basis points. Enter the nominal yield and the real yield.
The inflation the market is betting on
There's a way to know how much inflation the market expects over the coming years, and it doesn't involve guessing. Just compare two bonds of the same maturity: one paying a fixed nominal rate and another linked to inflation, paying a real rate. The gap between them is the breakeven, or implied, inflation, the rate at which it makes no difference which one you hold.
The right calculation isn't simply to subtract one from the other. The Fisher relationship is multiplicative: (1 + nominal) divided by (1 + real), minus one. The plain subtraction works as a shortcut, but it always overstates inflation, and the error grows as rates rise. At higher rate levels, that difference stops being a footnote and becomes basis points that matter in pricing.
Enter the nominal yield and the real yield, and the tool returns the exact breakeven inflation and, alongside it, the simple approximation, so you can see the size of the error. Keep in mind this number also embeds an inflation risk premium, so it's the expectation the market prices, not a guaranteed forecast.
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The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.