Change in 10-Yr Treasury Increases for First Time in Two Years

The trend in the 10-year Treasury rate indicates that much of the economy will grow slower or contract in 2019.

(Negative) The real 10-year treasury rate was 0.80 percent in April, which was essentially unchanged from the previous two months. April was the 15th consecutive month the real rate was below 1.00 percent. Despite the nominal rate reaching its highest level since December 2013, the annual inflation rate in April was the highest since February 2017, which helped keep the real 10-year Treasury rate down. 

The year-over-year change in the real rate, 21 basis points, was positive for the first time since April 2016. An increasing year-over-year change in the real 10-year Treasury rate is negative for consumer durable goods spending as those goods become relatively less expensive.

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 real interest rate should lead to decreases in all of these data points. Although the lead time between changes in the interest rate and capital equipment spending can be quite long, the real 10-year treasury rate is now a negative leading indicator for capital equipment spending.

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