Real 10-Year Rate Lowest Since May 2013

The real 10-year treasury rate was 0.40% in January 2015. 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 negative in January. This was the first time the annual rate of inflation was negative since October 2009. The annual rate of inflation has tumbled since the Federal Reserve put an official end to QE.

However, despite the decline in the inflation rate, the change in the real 10-year treasury rate continues to get more negative. January was the sixth consecutive month of the change in the real rate getting more negative. So, rates are falling faster and faster each month compared with one year ago. The year-over-year change in the real rate 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: 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.