Change in 10-Year Treasury Appears Positive

In December, the year-over-year change in the 10-year Treasury rate was 12 basis points, which was the lowest change rate since March 2018.

In December, the year-over-year change in the 10-year Treasury rate was 12 basis points, which was the lowest change rate since March 2018. That March was the last time the change in the 10-year Treasury rate was negative. In December 2017, the nominal 10-year Treasury rate had been rising, but in December 2018 it had declined for the second month in a row. Having adjusted for inflation, the real rate fell to 39 basis points, which was the lowest rate since December 2017.

It could be that the 10-year Treasury rate is declining, falling below 3.00 percent for the first time in three months, because of an anticipated slow down in the U.S. economy. However, both durable-goods capacity utilization and industrial production recorded very strong rates of growth in December. Perhaps the economy isn’t slowing as much as has been feared. 

Changes in the real 10-year Treasury rate tend to lead capital equipment consumption by a relatively long period of time – historically, 12 to 18 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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