Break-even inflation rate on Index-linked bonds?

Feb 01, 2006 1 Replies

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Rory Winston 20 years ago

Can anyone explain what the "break-even inflation rate" measure means on an index-linked bond? I gather that the indexed bond yields (as printed in the FT) are *real*, so does this mean that the break-even rate is the nominal inflation rate required in order to provide a *real* return equal to the face value of the bond (e.g. UK 1.5% '08)?

Thanks Roruy

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Rory Winston 20 years ago

Sorry, I think I may have figured it out. Looks like the break-even rate is the spread between the nominal and real yields, and is equivalent to the market's inflation estimate over a period of time.

Rory W> Hi

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