Financial market stresses decrease for second straight week

Financial market stresses eased for the second consecutive week, according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending Sept. 20, 2013, the STLFSI measured -0.572, its lowest level in five weeks, and a modest decline from the previous week’s value of -0.454.

As seen in the chart above, over the past week, 11 of the 18 indicators that are used to construct the STLFSI decreased from the previous week, while six of the 18 indicators increased. The largest negative contribution (relative to the previous week) was made by the Merrill Lynch bond market volatility index (Mlynch_BMVI_1mo), followed by the expected inflation rate over the next 10 years (BIR_10yr). Over the past week, the largest positive contribution was accounted for by the spread between yields on corporate Baa-rated bonds and 10-year U.S. Treasury securities (Corp_CRS).

The STLFSI remained above its year-earlier value for the third consecutive week. A year earlier, the index measured -0.670. Similar to last week, 10 of the 18 components made negative contributions to the index and the remaining eight components made positive contributions to the index over the past year, as seen in the chart above. The largest positive contribution to the annual change in the STLFSI was made by the BIR_10yr, while the Corp_CRS made the largest negative contribution.

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