In January, the nominal 10-year Treasury rate was 1.08%, which was the highest the rate and the first time the nominal rate was more than 1% since February 2020. The nominal rate trended higher for the sixth straight month.

The real 10-year Treasury rate, which is the nominal rate minus the rate of inflation, was -0.07%. This was the 13^th consecutive month and 16^th of the last 18 that the real rate was negative. However, the rate was grinding slowly higher since April.  January’s real rate was the highest since December 2019, which was the last time the real 10-year Treasury rate was positive.

In January, the year-over-year change in the real rate was 6 basis points, which was the first time that the change was positive since December 2018. 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.