Understanding inflation breakevens
30
April
2021
Inflation breakevens
Introduction
The Fisher equation is a way of decomposing a nominal yield into three components:
Real yields
Inflation expectations
Inflation risk premium
It is expressed as:
(1 + nominal rate) = (1 + real rate) (1+ inflation expectations) (1+ inflation risk premium)
It is common for practitioners to combine the last two elements into one component and refer to it as the
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