Market-implied inflation expectations from TIPS spreads. The 5Y5Y forward breakeven is the Federal Reserve's preferred measure of long-run inflation expectations.
The yield spread between nominal Treasuries and TIPS. A 10Y breakeven of 2.5% means the market expects 2.5% average annual inflation over the next decade.
The 5Y5Y forward strips out near-term noise to show inflation expectations 5-10 years from now. When it drifts from the Fed's 2% target, policymakers pay attention.
Watch for divergence between 5Y (near-term, volatile) and 5Y5Y (long-term, stable). When they diverge sharply, the market is distinguishing between temporary and structural inflation.
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