Economic News Blog
12. July 2019

Treasury Rate Positive Indicator for Durable Goods Manufacturing

In June, the nominal 10-year Treasury rate declined for the eighth month in a row, dropping to 2.07% from a high of 3.15% in October 2018. This was the lowest nominal rate since October 2016. For the month of June, the nominal 10-year Treasury rate averaged 0.31% less than the Fed Funds Rate, which is the overnight lending rate. This is extremely unusual, and it indicates that the market believes a recession is ahead. 

The annual rate of inflation according to the CPI dropped below 2.00% for the sixth time in seven months. As a result, the real 10-year Treasury rate was -0.01%, which was the lowest real rate since January 2013 and the last time the real rate was negative.

In June, the year-over-year change in the real 10-year Treasury rate was -0.66%, which was eighth consecutive month the change declined and the sixth-straight month the change was below zero. June’s change in the rate was the lowest since December 2017. 

Changes in the real 10-year Treasury rate tend to lead capital equipment consumption by a relatively long period of time – historically, between 12 and 24 months. The change in the 10-year Treasury rate is a good leading indicator of housing permits, construction spending, consumer durable-goods spending, durable goods new orders, and capital equipment spending. A decreasing year-over-year change in the real 10-year Treasury rate should lead to increases in all of these data points down the line.

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