Real 10-Yr Treasury Rate Highest Since May

(Negative) The real 10-year treasury rate was 0.99 percent in November 2016, which was an increase of just 28 basis points from last month. This was the highest real rate since May. And, the 10-year treasury rate has continued to increase in December. The nominal rate currently sits  260 basis points. The rate of inflation also has been rising. In November, inflation was at its higest annual rate since August 2014. Increasing inflation is limiting the rise in the real 10-year treasury rate (the real rate is the nominal rate minus inflation). 

The year-over-year change in the real rate increased slightly to -115 basis points. That was the first time since December that the change in the real rate increased. However, the change in the rate was still near its lowest level 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.