In February, the nominal 10-year Treasury rate was 1.26%, which was the first time the rate was more than 1% since February 2020. The nominal rate trended higher for the seventh straight month and seems poised to rise again in March (as of this writing on March 12, the rate reached as high as 1.65%).

The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was 0.17%. The nominal rate is rising faster than the rate of inflation, which was 1.68% in February, according to the CPI. February was the first month since December 2019 that the real rate was above 0%.

In February, the year-over-year change in the real rate was 63 basis points, which was the second month in a row that the change was positive and growing. Also, this was the highest level for the year-over-year change in the real rate since March 2016.

As much as the absolute level of interest rates, it is the relative change in interest rates that drives additional borrowing and spending. A rising change in the real 10-year Treasury rate tends to be a negative 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.