Financial market stress falls to lowest level in more than seven months

Financial market stress dropped to a seven-month low in the latest reporting week according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending Dec. 27, 2013, the STLFSI measured -0.927, its lowest level since the week ending May 17, 2013. The STLFSI has been below zero for 101 consecutive weeks.

Over the past week, 11 of the 18 indicators contributed negatively to the change in the STLFSI. The largest negative contribution was made by the equity market volatility index (VIX), followed by the spread between Baa-rated corporate bonds and 10-year Treasury securities (Corp_CRS). Over the past week five indicators made positive contributions. The largest positive contribution over the previous week was registered by the Treasury yield curve, which is the difference between yields on 10-year Treasury securities and 3-month Treasury bills (YieldCurve_10yr3mo).

For the second consecutive week, financial market stress was below its level from a year earlier. Over the past 52 weeks, 12 of the 18 indicators contributed negatively to the change in the STLFSI. The largest negative contribution was registered by the VIX, followed by the spread between yields on high-yield corporate bonds and 10-year Treasury securities (HighYield_CRS). For the 15th straight week, the largest positive contribution to the STLFSI over the past year was made by the expected inflation rate over the next 10 years (BIR_10yr).