Summary
- Inflation breakeven rates have been rising fairly steadily since February 2016 and now are in the ‘neutral’ zone of value.
- When inflation breakevens rise, TIPS outperform nominal Treasurys.
- The lower the breakeven rate, the higher the ‘margin of safety’ for TIPS investors versus nominal Treasurys.
The inflation breakeven rate is a very accurate measure of the relative value of TIPS versus nominal Treasurys, and a possible predictor of the relative future performance of the two asset classes.
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