Real 10-Year Rate Lowest since August 2015
The real 10-year treasury rate was 1.85 percent in January 2016. This was the first time the real rate was below 2 percent since November 2015 and the lowest the real rate has been since August 2015. Since the Fed has announced it was raising its overnight rate, the real 10-year treasury rate has dropped each of the last two months. The change in real 10-year treasury rate had increased for 12 months in a row, but in January the change in the real rate fell for the first time since January 2015.
While the change in the real rate increased at a slower rate, the change in the nominal rate continued to increase at a faster rate. The difference is inflation. The annual rate of inflation, according to the CPI, was at its highest level since October 2014. And, the annual rate of inflation doubled since just last month.
The 10-year treasury rate is good leading indicator of the money supply, housing permits, consutrction spending, and consumer durable goods spending. A rising real interest rate should lead to lower housing permits, construction spending, and consumer durable goods spending. This was the concern when the Fed raised rates. However, the real rate and the change in the real rate is falling rate, meaning the the real 10-year treasury rate is now a positive leading indicator for capital spending.
The real Fed funds rate is an important leading indicator for the following industries: appliances; automotive; custom processors; furniture manufacturing; hardware; HVAC; metalcutting job shops; off-road/construction machinery; petrochemical processors; plastics/rubber; pumps/valves/plumbing products; textiles/clothing/leather goods; and wood/paper.blog comments powered by Disqus