Financial market stress up modestly from previous week

The St. Louis Fed Financial Stress Index (STLFSI) rose modestly over the past week, partially reversing last week’s decline. For the week ending Jan. 3, 2014, the STLFSI measured -0.904, up from a reading of -0.934 in the previous week. Over the four most recent weeks, the STLFSI has averaged -0.882, compared with an average of -0.862 over the prior four weeks.

Over the past week, nine of the 18 indicators contributed positively to the change in the STLFSI, while seven indicators made negative contributions. This was the first instance since the week ending Dec. 6, 2013, when the number of positive contributions exceeded the number of negative contributions. The largest positive contribution over the previous week was accounted for by the Merrill Lynch bond market volatility index (Mlynch_BMVI_1mo). The indicator accounting for the largest negative contribution was the expected inflation rate over the next 10 years (BIR_10yr).

For the third consecutive week, financial market stress was below its level from a year earlier. Over the past 52 weeks, 11 of the 18 indicators contrib-uted negatively to the change in the STLFSI, one less than in the previous week. The largest negative contribution was made by the spread between Baa-rated corporate bonds and 10-year Treasury securities (Corp_CRS), while the largest positive contribution was made by the BIR_10yr. Measured from a year earlier, this measure of long-term inflation expectations (BIR_10yr) has registered the largest positive contribution for 16 consecutive weeks.

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