St. Louis Fed Financial Stress Index eases for third consecutive week

Following a brief hiccup from mid-May to late-June, financial market stresses continue to ease. For the week ending July 19, 2013, the St. Louis Fed Financial Stress Index (STLFSI) measured -0.523, its third consecutive weekly decline and its lowest level in nearly two months.

As seen in the chart above, 11 of the 18 indicators that are used to construct the STLFSI decreased from the previous week. In the week ending July 12, 14 indicators registered negative contributions. For the second consecutive week, the largest negative contribution to the STLFSI was the Merrill Lynch bond market volatility index (Mlynch_BMVI_1mo). The next two largest negative contributions were made by the 10-year breakeven inflation rate (BIR_10yr), which is a measure of inflation expectations, and by the spread between yields on high-yield corporate bonds and 10-year Treasury securities (HighYield_CRS).

As seen on the chart above, the STLFSI continues to track below zero and below its level from a year earlier. Over the past 52 weeks, 14 of the 18 components made negative contributions to the index—one more than last week. Compared with a year earlier, the two largest negative contributions were the HighYield_CRS and the spread between yields on corporate Baa-rated bonds and 10-year Treasury securities (Corp_CRS). The largest positive contribution was made by the bond market volatility index (Mlynch_BMVI_1mo), which was about equal in size but opposite in sign.

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