Real 10-Year Treasury Continues to Fall

The real 10-year treasury rate was 0.65% in November 2014. This was a slight uptick from last month, but overall the real rate has been falling since March 2014. The main reason the real rate was up from last month is the annual rate of inflation, according to the CPI, has fallen to its lowest rate since October 2013. 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 four straight months. The year-over-year change is now the lowest it has been since August 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.

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.