St. Louis Fed Financial Stress Index rises modestly for second consecutive week

Financial market stresses rose modestly for the second consecutive week, according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending Aug. 23, 2013, the STLFSI measured -0.424, slightly above the previous week (-0.559). The latest reading is the highest in six weeks.

As seen in the chart above, 10 of the 18 indicators that are used to construct the STLFSI increased from the previous week. This was one more than in the previous week. For the second consecutive week, the Merrill Lynch bond market volatility index (Mlynch_BMVI_1mo) registered the largest positive contribution to the weekly change. The next two largest contributions were accounted for by the equity market volatility index (VIX) and the expected inflation rate over the next 10 years (BIR_10yr). Over the past week, five of the 18 components made negative contributions and three were unchanged.

The STLFSI has been below zero for 62 consecutive weeks. As seen in the chart above, over the past year, 11 of the 18 components made negative contributions to the index—the largest of which was the spread between yields on corporate Baa-rated bonds and 10-year Treasury securities (Corp_CRS). By contrast, 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.