Economic News Blog
Posted by: Steven Kline, Jr. 24. October 2016

Real 10 Yr Rate Lowest Since Feb. '15

(Positive) The real 10-year treasury rate was 0.70 percent in September 2016, falling below 1 percent for the fourth month in a row and reaching its lowest level since February 2015. Since the Fed announced it was raising its overnight rate, the real 10-year treasury rate has dropped each of the last 10 months. A significant reason for this is that that the rate of inflation, while still low historically, has picked up from what it was in 2015. In September, the annual rate of inflation was the highest since October 2014, according to the CPI. 

The year-over-year change in the real rate (the real rate is the nominal rate minus inflation) fell to -115 basis points. That was the fifth consecutive motnh that the year-over-year change declined an the fastest decline since July 2012. 

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.

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