Economic News Blog
Posted by: Steven Kline, Jr. 21. March 2016

Real 10-Yr Treasury Rate Continues to Fall

The real 10-year treasury rate was 1.45 percent in February 2016. This was the lowest the real rate had been since May 2015, and it was the second month in a row that the real rate was below 2 percent. Since the Fed has announced it was raising its overnight rate, the real 10-year treasury rate has dropped each of the last three months. Apparently, the market does not see things the same way as the Fed. The change in the real 10-year treasury rate decreased for the second consecutive month, indicating the rate of increase in interest rates compared with one year ago is slowing down. 

While the change in the real rate increased at a slower rate, the change in the nominal rate actually went down, indicating that the nominal rate was lower than it was one year ago. The difference is inflation. The current average annual inflation rate in February was still much lower than it was one year ago.

The 10-year treasury rate is good leading indicator of the money supply, housing permits, consutrction spending, and consumer durable goods spending. A falling real interest rate should lead to more housing permits, construction spending, and consumer durable goods spending. This means that the real 10-year treasury rate is now a positive leading indicator for capital spending. 

The real 10-year treasury rate 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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