In December, the nominal 10-year Treasury rate was 0.93%, which was the highest the rate had been since February. It was the ninth month in a row and the ninth month ever that the monthly average was below 1%. Although, the rate was more than 1% for most of the early part of January 2021.

The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -0.31%. This was the 12^th consecutive month and 15^th of the last 17 that the real rate was negative. However, the rate was grinding slowly higher since April.  December’s real rate was the highest since December 2019, which was the last time the real 10-year Treasury rate was positive.

In December, the year-over-year change in the real rate was -35 basis points. The change was negative for the 24^th month in a row. The change was at its highest level since December 2019. Since April, the trend in the year-over-year change in the real 10-year Treasury was less negative. A less negative change in the real rate is generally less stimulating to the economy.

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. Rising changes in the real 10-year Treasury rate tend to lead to contraction in durable goods new orders and capital equipment consumption by a relatively long period of time – historically, between 12 and 24 months. The rising change in the 10-year Treasury rate is a good leading indicator of future contraction in housing permits, construction spending and consumer durable-goods spending as well.