Change in 10-Year Treasury Supports Spending and Investment

The real 10-yr Treasury rate remained below 10 basis points for the sixth month in a row.

In December, the nominal 10-year Treasury rate was 1.86%. While this was the highest rate since July, it was also the fifth month in a row the nominal rate was less than 2.00%. At the same time, inflation reached its highest annual rate since October 2018 and kept the real 10-year Treasury rate near its lowest rate in six years. In November, the real rate was just 0.05%.

In November, the year-over-year change in the real 10-year Treasury rate was -0.33%, which was the 12th consecutive month the change was negative. 

The low 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 durable goods new orders and 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. 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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