Inflation & Real Rates Lab

About this tool

An educational lab for comparing nominal government bonds with inflation-linked bonds (TIPS) using market-implied inflation. The central question it makes explicit: not whether inflation is high or low, but whether it will come in above or below what the bond market has already priced — the breakeven rate. Data comes from FRED (Federal Reserve Bank of St. Louis) and the U.S. Department of the Treasury and refreshes nightly.

Educational tool only — not financial advice. Do your own research before making any decision.

What the lab covers

• Dashboard — today's inflation prints in context: headline and core CPI year-over-year, 3- and 6-month annualized momentum, PCE (the Federal Reserve's preferred gauge), consumer survey expectations (University of Michigan), and market-implied breakevens with the 5y5y forward.
• Breakevens & Real Rates — breakeven inflation curves (nominal Treasury yield minus TIPS real yield), real yield history, the 5y5y forward breakeven, and percentile context that shows whether inflation protection is historically cheap or rich.
• Breakeven Calculator — enter an inflation forecast (a single point forecast, or probability-weighted scenarios) and compare it to the market breakeven: expected TIPS-vs-nominal outperformance per year, the probability that TIPS outperform, plus a duration-based rate-sensitivity table.
• Instruments / ETFs — maps the analysis to investable sleeves: broad, short and long-duration TIPS ETFs (e.g. TIP, SCHP, VTIP, LTPZ) versus nominal Treasury ETFs (e.g. SHY, IEF, GOVT, TLT), with approximate durations and expense ratios.
• Signals & Monitoring — a transparent two-component regime score (breakeven valuation percentile + core-CPI momentum) with its decomposition and all thresholds shown.
• History & Backtest — was the breakeven right? For each month in history, compares the breakeven quoted then with the inflation that actually followed, reporting the hit rate and the (historically modest) correlation between priced and realized inflation.

The breakeven identity

Breakeven inflation is defined by:

Breakeven = Nominal Treasury yield − Real (TIPS) yield

It is the average inflation rate over the bond's life at which a nominal bond and an inflation-linked bond of the same maturity deliver the same return. If realized inflation comes in above the breakeven, the TIPS wins (its inflation accrual beats the extra yield the nominal paid); if it comes in below, the nominal wins.

Why “versus what's priced in” matters

Falling inflation does not automatically favour nominal bonds: if inflation falls but still lands above the breakeven, the inflation-linked bond still outperforms. The lab therefore anchors every view on the spread between an explicit inflation forecast and the market-implied rate, rather than on the level of inflation itself. The 5y5y forward breakeven isolates the inflation priced for the five years starting five years out — a common gauge of whether long-run expectations are anchored — and percentile context shows when protection is unusually cheap or expensive relative to its own history.

Disclaimer

This lab is an educational and mathematical tool only. It is not financial advice, not a recommendation, and not a solicitation. Figures are approximations of public data (FRED, U.S. Treasury); the calculator uses a simplified hold-to-maturity framework and the assumptions provided. Past performance does not guarantee future results. Do your own research and consult an independent qualified professional before making any decision.