Financial market stresses remained lower than average in the latest reporting week according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending July 26, 2013, the STLFSI measured -0.594, its lowest level since the week ending May 31, 2013.
As seen in the chart above, 13 of the 18 indicators used to construct the STLFSI decreased from the previous week. For the third 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 CBOE volatility index (VIX) and the 10-year break-even inflation rate (BIR_10yr)—a measure of inflation expectations. The spread between yields on high-yield corporate bonds and 10-year Treasury securities (HighYield_CRS) also contributed negatively for the fourth consecutive week.
As seen in the second chart above, the STLFSI continues to track below zero and below its level from a year earlier (-0.182). Over the past 52 weeks, 12 of the 18 components made negative contributions to the index—two fewer 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). These two indicators have been the largest negative contributions for six weeks in a row.
For an explanation of the 18 component variables in the STLFSI, refer to the STLFSI Key.