Three FRED series, one mechanism. T5YIE, T10YIE, and T5YIFR all come from the same trade: subtract the yield on inflation-protected Treasuries from the yield on ordinary Treasuries of the same maturity. The difference is what the bond market is implicitly pricing for future inflation. They are not three independent readings. The third is built from the first two.
The shared mechanism
The breakeven inflation rate is the nominal Treasury yield minus the TIPS yield at the same maturity. TIPS pay a fixed real coupon and have their principal adjusted by CPI, so their yield is a real yield. An ordinary Treasury yield is nominal: real return plus whatever inflation the market expects plus risk compensation. Subtract one from the other and the inflation piece falls out.
The number is the average annual inflation rate that would leave an investor indifferent between the two bonds over the term. Above it, TIPS win; below it, the nominal bond wins. Hence “breakeven.”
- T5YIE uses 5-year constant-maturity nominal and TIPS yields. It prices average inflation over the next 5 years (2026 through 2031).
- T10YIE uses 10-year yields. It prices average inflation over the next 10 years (2026 through 2036).
Both are daily series the St. Louis Fed computes from Treasury constant-maturity data sourced directly from the U.S. Treasury.
Why the three are the same object
The 10-year window contains the 5-year window. The market’s 10-year expectation is a compound of what it expects over years 0 to 5 and what it expects over years 5 to 10. Write the breakevens as gross rates and the relationship is exact:
(1 + b10)^10 = (1 + b5)^5 × (1 + f)^5Solve for f, the 5-year-5-year forward, and you get T5YIFR:
f = [ (1 + b10)^10 / (1 + b5)^5 ]^(1/5) − 1This is the exact formula FRED publishes: (((((1+b10)^10)/((1+b5)^5))^0.2)-1)*100, with b10 and b5 the 10- and 5-year breakevens. T5YIFR is not measured. It is bootstrapped from T5YIE and T10YIE. So the answer to “are they related” is stronger than related: given any two of the three, the third is determined.
What T5YIFR isolates is the far half of the curve, average inflation over the five years that begin five years out. That matters because the near 5 years are dominated by transient shocks — energy spikes, tariff pass-through, supply disruptions — that the market expects to fade. T5YIFR nets those out. If T5YIE jumps but T5YIFR holds flat, the market is saying “higher now, back to normal later.” That gap is the whole reason the forward rate exists. See [private link].
What contaminates the signal
A breakeven is not a clean forecast. It is expected inflation plus two premiums that move over time, often in opposite directions, per the Fed’s Tips from TIPS work.
The [private link] is extra yield investors demand on nominal bonds for bearing the risk that inflation overshoots. It pushes breakevens above true expected inflation. Its size is contested and model-dependent: some no-arbitrage estimates put the 10-year version small, on the order of 10 to 20 basis points depending on the expected-inflation proxy, while other models put it higher or occasionally negative.
The TIPS liquidity premium runs the other way. TIPS trade in a thinner market than nominal Treasuries, so investors demand extra real yield to hold them, which drags breakevens below true expectations. This one is large and volatile: as high as ~100 bp when TIPS were first issued in the late 1990s, spiking to roughly 300 bp during the 2008 financial crisis when investors dumped TIPS for cash, then compressing to ~10 bp in calmer periods.
The two run in opposite directions, but they are not the same size. In calm markets the liquidity premium compresses to a handful of basis points, so it roughly offsets the small risk premium and breakevens track expectations reasonably well. The signal holds because both premiums are small when conditions are normal, not because a large offset is reliably maintained. In a liquidity crunch that balance breaks: the liquidity premium blows out while the risk premium barely moves, and a falling breakeven can signal a TIPS fire sale rather than genuine disinflation. Late 2008 is the textbook case: breakevens briefly implied deflation that never came.
How to read them
- Level. Compare T10YIE and T5YIFR to the Fed’s 2% PCE target. CPI runs above PCE by roughly 0.3 to 0.4 points on average (the wedge varies year to year), so a breakeven near 2.3% to 2.4% is consistent with the market believing the Fed will hit 2% PCE. In May 2026 T5YIFR sat near 2.26%.
- Shape. T5YIE above T5YIFR means expected near-term inflation above the long-run anchor: the market sees a hump that decays. The reverse means it expects inflation to build. The catch: T5YIFR is bootstrapped from T5YIE and T10YIE, so this divergence is just the slope of two breakevens you already hold, carrying the same premium contamination. It is not an independent reading, and agreement among the three series confirms nothing.
- What moves it. Day to day, breakevens react to oil, CPI surprises, and Fed communication. The forward rate is stickier by construction; a move in T5YIFR is the one that should worry a central banker, because it is the market doubting the anchor itself. Forward breakevens are a series the Fed weights heavily for exactly this reason.
- Don’t over-read small wiggles. With premiums of tens of basis points sloshing around, a 10 bp move is inside the noise. Confirm against survey measures (Michigan, SPF) and the Cleveland Fed’s model-based EXPINF series before calling it a regime change.
Try it
Reconstruct T5YIFR from the other two (1 hour, Python + FRED API). Pull T5YIE and T10YIE from the FRED API (free key) into pandas. Compute f = ((1 + b10/100)**10 / (1 + b5/100)**5)**0.2 - 1 and multiply by 100. Pull T5YIFR directly and diff the two series. They should match to rounding. What you are confirming: the forward rate carries no information beyond the two breakevens it is built from. Then plot all three since 2003 and find the moments T5YIE and T5YIFR diverge most. The 2022 gap looks like the market separating a temporary shock from a permanent shift. The 2008 gap is a trap: the contamination section says much of it was the TIPS liquidity blowout, a premium artifact, not an expectation split. Same divergence, opposite cause. That is the lesson, a wide T5YIE-minus-T5YIFR gap is a question, not an answer.
See also
- Systems Thinking — inflation expectations are a feedback loop: the Fed acts on the market’s reading of the Fed, with the 12-to-18-month policy delay built in.
Sources
- Tips from TIPS: Update and Discussions — Federal Reserve Board note on decomposing breakevens into expectations, risk premium, and liquidity premium.
- TIPS Liquidity, Breakeven Inflation, and Inflation Expectations — San Francisco Fed, on the 2008 liquidity-premium blowout.
- Inflation Risk Premium: Evidence from the TIPS Market — D’Amico, Kim, Wei, term-structure decomposition and premium magnitudes.