Financial market stress decreases for the sixth week out of past seven

Financial market stress declined for the sixth week in the past seven, according to the St. Louis Fed Financial Stress Index (STLFSI). The STLFSI measured -0.780 for the week ending Oct. 25, 2013, its lowest level since the week ending May 24, 2013.

As seen in the chart above, relative to the past week, 10 of the 18 indicators contributed negatively to the change in the STLFSI, while six indicators made positive contributions.  Similar to the previous week, the two largest negative contributions were made by the Merrill Lynch bond market volatility index (Mlynch_BMVI_1mo) and the equity market volatility index (VIX). The largest positive contribution over the past week was made by the spread between yields on three-month Treasury bills and three-month Eurodollars, which is often referred to as the TED spread.

The STLFSI was below its year-earlier level for the first time in four weeks. Over the past 52 weeks, 13 of the 18 indicators contributed negatively to the change in the STLFSI—one more than the previous week. Compared with a year earlier, the VIX made the largest negative contribution to the STLFSI, followed closely by the spread between yields on high-yield corporate bonds and 10-year U.S. Treasury securities (HighYield_CRS). For the sixth consecutive week, the largest positive contribution was made by the expected inflation rate over the next 10 years (BIR_10yr).

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