Real 10-Yr Treasury Rate Unchanged in December

The real 10-year treasury rate was 2.12 percent in December 2015. This was the second month in a row that the real rate has been above 2 percent. Also, this was the eighth month in a row that the year-over-year change in the real rate was more positive and the 11th month in a row that the change has increased. At 153 basis points, the year-over-year change in the real rate was at its highest rate since December 2013.

The nominal rate also was virtually unchanged from last month. And, while inflation was still historically low, the annual rate of inflation reached its highest level since December 2014. The increase in the rate of inflation helped temper the rise in the nominal rate as the real rate is the nominal rate minus inflation.

The 10-year treasury rate is good leading indicator of the money supply, housing permits, consutrction spending, and consumer durable goods spending. Currently, the  change in the real rate is a negative indicator. Interest rate changes tend to lead these data points by 12-15 months. Therefore, we should expect to see decelerating 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.