The U.S. two-year interest-rate swap spread, a measure of stress in bond markets, traded today at about 20.5 basis points, about the lowest in a year and down from 2012's high of almost 60 basis points in October. The gauge, which dropped 4.4 basis points in July for the second straight monthly decline, widens when investors seek the perceived safety of government securities and narrows when they favor assets such as corporate bonds.
Treasuries are benefitting from global demand for the safety of U.S. debt as investors flee troubled European nations from Spain to Italy. The yield on the 10-year Treasury note declined to an all-time low of 1.3790 percent on July 25. The 10-year yield yesterday fell three basis points, or 0.03 percentage point, to 1.47 percent in New York, according to Bloomberg Bond Trader prices.
U.S. consumers are cutting back as Europe's debt crisis and looming U.S. tax-policy changes dent confidence. Household consumption, which accounts for about 70 percent of the economy, rose at a 1.5 percent rate from April through June, down from a 2.4 percent gain in the prior quarter, according to Commerce Department data.
Manufacturing in the U.S. unexpectedly contracted for a second month in July, a report today from the Institute for Supply Management showed. The ISM's factory index was 49.8 last month, close to the three-year low of 49.7 reached in June. Fifty marks the dividing line between expansion and contraction.
FedEx Corp., the Memphis, Tennessee-based operator of the biggest cargo airline, gave a smaller profit forecast than analysts estimated for the fiscal year ending in May 2013. "Weaker global economic conditions," such as Europe's debt crisis and slowing growth in Asia, will impair performance, Chief Financial Officer Alan Graf said on a June 19 earnings call.
The slowdown in consumer and business spending is hurting growth. The economy expanded at a 1.5 percent annual rate in the second quarter after a revised 2 percent gain in the first quarter, the Commerce Department said July 27. Economists estimate that GPD will rise 2.1 percent this year, according to the median of 72 forecasts in a Bloomberg survey.
United Parcel Service Inc., the world's largest package- delivery company, cut its full-year earnings forecast July 24 amid a drop in international package sales. Chief Executive Officer Scott Davis said the Atlanta-based firm predicts the economy will expand 1 percent in the second half of the year.
"Our macro concerns start with the fact that we saw lousy numbers in the last couple of months," Davis said on a call with analysts and investors, citing declines in gauges of retail sales and manufacturing. "There's just more uncertainty out there than ever."
While many U.S. companies face headwinds from slowing growth, others are surpassing Wall Street estimates for quarterly earnings. Of the 353 companies in the S&P 500 Index that have reported results, 253 beat analyst estimates, data compiled by Bloomberg show.
"We're in a real muddle-through economy that's very disappointing in the rate of job creation," said Michael Dueker, a former St. Louis Fed economist who is now chief economist for Seattle-based Russell Investments, which oversees $152 billion.