Financial market stresses eased modestly over the previous week, according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending July 5, 2013, the STLFSI measured -0.236, versus -0.205 for the week ending June 28. The latest decline (a larger negative number) was the first in eight weeks.
As seen in the chart above, nine of the 18 indicators that are used to construct the STLFSI decreased from the previous week. The two indicators registering the largest negative contribution for the week ending July 5 were the expected inflation rate over the next 10 years (BIR_10yr) and the Chicago Board Options Exchange Market Volatility Index (VIX). By contrast, the Merrill Lynch bond market volatility index (Mlynch_BMVI_1mo) was the component registering the largest positive contribution to the STLFSI over the previous week. In fact, the Mlynch_BMVI_1mo contributed positively to the index for the third consecutive week.
The STLFSI remains below it’s level from a year earlier. Indeed, the index has been consistently below zero since the week ending June 15, 2012. As seen in the second chart above, over the past 52 weeks, 12 of the 18 components have made negative contributions to the index. For the second consecutive week, the spread (Corp_CRS) between the Baarated corporate bond and the 10-year U.S. Treasury security made the largest negative contribution, while the Mlynch_BMVI_1mo made the largest positive contribution.
For an explanation of the 18 component variables in the STLFSI, refer to the STLFSI Key.