The second estimate is the term premium at each horizon, or the compensation investors require for holding securities an additional period. As might be expected, imprecision about our estimates of these pieces may well increase with the forecast horizon. Treasury inflation-protected securities (TIPS) are financial market assets that provide a judgment on forward-looking views about inflation.
The gap between nominal Treasury yields and yields on TIPS of comparable maturities is called the breakeven inflation rate. The breakeven rate incorporates the market's expectation of inflation and the risk premium for uncertainty about these expectations. It also reflects liquidity differences between the two types of securities, which now are smaller than during the period immediately after TIPS were introduced in 1997.