Economic News Blog
Posted by: Steven Kline, Jr. 16. January 2015

Real 10-Year Treasury Rate Lowest since May 2013

The real 10-year treasury rate was 0.59% in December 2014. The rate fell from last month and this is the lowest it has been since May 2013. The real rate continues to fall even thought the rate of inflation, according to the CPI, was under 1%. At 0.76%, the rate of inflation is the lowest it has been since it was last negative back in October 2009.

Since July 2013, the year-over-year change in the real 10-year treasury rate has been falling. It has been in negative territory, meaning the rate is lower than it was one year ago, for five straight months. The year-over-year change is now the lowest it has been since July 2012

The 10-year treasury rate is good leading indicator of the money supply, consutrction spending, and consumer durable goods spending. Currently, the trend in the change in the interest rate is moving in a direction that would indicate growth in the money supply, construction spending, and consumer durable goods spending. Interest rate changes tend to lead these data points by 12-15 months. Therefore, we should expect to see accelerating growth in these data points begin (or continue) soon. Of course, this will largely depend on the Fed's decision to either raise interest rates or resume QE.

The real Fed funds rate is an important leading indicator for the following industries: appliancesautomotivecustom processorsfurniture manufacturinghardwareHVACmetalcutting job shopsoff-road/construction machinerypetrochemical processorsplastics/rubberpumps/valves/plumbing productstextiles/clothing/leather goods; and wood/paper.

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