Economic News Blog
Posted by: Steven Kline, Jr. 16. October 2019

Real 10-Year Treasury Rate Continues Negative Trend

In September, the nominal 10-year Treasury rate inched higher for the first time in 10 months, rising to 1.70% from 1.63%. However, this was the second straight month the nominal rate was below 2.00% . September was the fourth month in a row that the nominal 10-year Treasury rate averaged less than the Fed Funds Rate, which is the overnight lending rate. The 10-year Treasury rate falling below the Fed Funds rate tends to indicate a recession is ahead.

The annual rate of inflation according to the CPI was below 2.00% for the fifth month in a row ninth time in 10 months. As a result, the real 10-year Treasury rate was -0.15%. September was the third time in four months that the real 10-year Treasury rate was negative.

In September, the year-over-year change in the real 10-year Treasury rate was -0.73%, which was the ninth consecutive month the change was negative and virtually unchanged from last month.

The low and falling change in the real 10-year Treasury rate tends to be a positive signal for durable goods manufacturing. 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. An 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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