In July, the nominal 10-year Treasury rate was 0.62%, which was the lowest rate ever. And, it was the fifth month in a row and the fifth month ever that the monthly average was below 1%. So, the nominal 10-year Treasury rate was at or hovered near its all-time lows for five straight months.

The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -0.88%. This was the seventh consecutive month and 10th of the last 12 that the real rate was negative. Inflation was relatively low but increased in the last two months. 

In July, the year-over-year change in the real rate was -96 basis points. The change was negative for the 19^th month in a row and slightly more negative than last month. In general, the trend in the year-over-year change in the real 10-year Treasury was moving down (more negative) in the last six years. In order for that trend to continue, the rate of inflation needs to accelerate since the Federal Reserve has stated it has no desire for nominal rates to go below zero.

 

As much as the absolute level of interest rates, it is the relative change in interest rates that drives additional borrowing and spending. A falling change in the real 10-year Treasury rate tends to be a positive signal for durable goods manufacturing. Declining changes in the real 10-year Treasury rate tend to lead growth in durable goods new orders and capital equipment consumption by a relatively long period of time – historically, between 12 and 24 months. The longer-term declining change in the 10-year Treasury rate is a good leading indicator of growth in housing permits, construction spending and consumer durable-goods spending as well.