Change in 10-Yr Rate Continues to Increase

(Negative) The real 10-year treasury rate was 1.07 percent in January, which was a slight decline from last month. But, the rate has been above 1.00 percent the last two months after five months in a row below 1.00 percent. The nominal rate currently sits 243 basis points, which is the second highest since September 2014 (only last month was higher). But, the rate of inflation also has been rising. In January, inflation was above 2.5 percent, which was the higest it has been since March 2012. Increasing inflation is limiting the rise in the real 10-year treasury rate even though the nominal rate has increased (the real rate is the nominal rate minus inflation). 

The year-over-year change in the real rate increased to --78 basis points. That was the third straight month of an increase. 

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 negative leading indicator for capital spending.