Thursday, May 8, 2014

Brian Romanchuk — Primer: What Is Breakeven Inflation?


Is the bond market a better guide to inflation expectations than surveys?

The breakeven inflation rate is a market-based measure of expected inflation. It is the difference between the yield of a nominal bond and an inflation-linked bond of the same maturity.

Since investors' money is on the line, they presumably have an interest in pricing inflation correctly. It is viewed as a more reliable measure of inflation expectations than those measured by surveys. In this article, I explain how this concept is used in bond market economic analysis.
Bond Economics
Primer: What Is Breakeven Inflation?
Brian Romanchuk

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