Change in 10-Year Treasury Highest Since March 2016

The change in the 10-year Treasury rate reached its highest level since March 2016, indicating that an economic slow down may occur in 2019.

In September, the year-over-year change in the 10-year Treasury rate was 43 basis points. This was the second month in a row that the change in the 10-year rate increased, and it was the highest level for the change since March 2016. The change in the 10-year rate is indicating an economic slow down may occur in 2019. Changes in the real 10-year Treasury rate tend to lead capital equipment consumption by a long period of time – historically, 12 to 18 months.

In September, the real 10-year Treasury rate was 0.58 percent, which was the first time the real rate increased since May. September was the 20th consecutive month the real rate was below 1.00 percent. However, the real rate increased because the nominal rate rose to 3.00 percent for the first time since July 2011 and the annual rate of inflation declined to its lowest level since February. remained relatively low due to the generally rising annual rate of inflation. However, even at this level, the nominal rate was still less than half its historical average of 6.15 percent. Amazingly, we have not seen average interest rates since May 2000.

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 increasing year-over-year change in the real 10-year Treasury rate should lead to decreases in all of these data points down the line.

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