10-Year Treasury Rate

In July, the nominal 10-year Treasury rate declined for the ninth month in a row, dropping to 2.06% from a high of 3.15% in October 2018.

In July, the nominal 10-year Treasury rate declined for the ninth month in a row, dropping to 2.06% from a high of 3.15% in October 2018. This was the lowest nominal rate since October 2016. July was the second month in a row that the nominal 10-year Treasury rate averaged less than the Fed Funds Rate, which is the overnight lending rate. This is unusual, and it seems to happen in the lead up to a recession.

The annual rate of inflation according to the CPI dropped below 2.00% for the seventh time in eight months. As a result, the real 10-year Treasury rate was 0.08%, which was the second lowest real rate since April 2013 (only last month was lower).

In July, the year-over-year change in the real 10-year Treasury rate was -0.46%, which was the first time in nine months that the change increased. However, the change remained below zero for the seventh consecutive month, a positive sign for 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 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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