St. Louis Fed Financial Stress Index eases to its lowest level in four weeks

Financial market stresses eased for the second consecutive week, according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending July 12, 2013, the STLFSI measured -0.351, its lowest level in four weeks. The STLFSI has been negative—signifying below-average levels of financial market stress—for more than 13 months, since the week ending June 15, 2012.

As seen in the chart above, 14 of the 18 indicators used to construct the STLFSI decreased from the previous week. In the previous week, nine indicators registered negative contributions. For the week ending July 12, the largest negative contribution to the STLFSI was the Merrill Lynch bond market volatility index (Mlynch_BMVI_1mo). By contrast, over the previous three weeks, the Mlynch_BMVI_1mo was the component registering the largest positive contribution to the STLFSI. Of the components that registered positive contributions to the STLFSI over the past week, the largest contributor was the spread between yields on 10-year Treasury securities and 3-month Treasury bills (YieldCurve_10yr3mo).

As seen on the chart above, the STLFSI remains below its level from a year earlier, when it measured -0.123. Over the past 52 weeks, 13 of the 18 components have made negative contributions to the index—one more than last week. For the third consecutive week, the spread between yields on corporate Baa-rated bonds and 10-year Treasury securities (Corp_CRS) made the largest negative contribution, while the bond market volatility index (Mlynch_BMVI_1mo) made the largest positive contribution.

For an explanation of the 18 component variables in the STLFSI, refer to the STLFSI Key.