Breakeven Rate (Rate Breakeven)
The yield rise that exactly offsets carry income — expressed in basis points.
Breakeven rate answers: 'How much can yields rise before I lose money?' It equals the bond's carry (running yield) divided by its modified duration, expressed in basis points. Intuitively: if a bond yields 5% with duration 6, a 83bp yield rise (5% / 6 × 100) erodes exactly one year's worth of carry. Beyond that, the price loss exceeds the income earned. Why it matters: Breakeven rate is a risk-return sanity check — it tells you how much rate cushion your carry provides. A high-yield bond with 400bp carry and duration 4 has a 100bp breakeven — significant cushion. A long-duration low-coupon bond with 150bp carry and duration 12 has a 12.5bp breakeven — almost no cushion. Short-duration, high-carry positions have the widest rate protection.
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