Financial market stress reaches lowest level in nearly eight months

The St. Louis Fed Financial Stress Index (STLFSI) measured -0.950 for the week ending Jan. 10, 2014. The latest value was the index’s lowest level in nearly eight months. The STLFSI remains well above its all-time low of –1.332, which occurred in February 2007.

Over the past week, 12 of the 18 indi-cators contributed negatively to the change in the STLFSI, a sharp reversal from the previous week, when only seven indicators made negative contributions. For the week ending Jan. 10, 2014, the equity market volatility index (VIX) made the largest negative contribution, followed by the expected inflation rate over the next 10 years (BIR_10yr). The largest positive contribution over the previous week was accounted for by the difference between the yield on the three-month Treasury bill and the interest rate on three-month Eurodollars. This indicator is often referred to as the TED spread.

Financial market stress remained below its level from a year earlier for the fourth straight week. Over the past 52 weeks, 11 of the 18 indicators contributed negatively to the change in the STLFSI, the same number as in the previous week. Like the previous reporting week, the largest negative contribution over the past year was made by the spread between Baa-rated corporate bonds and 10-year Treasury securities (Corp_CRS). The BIR_10yr registered the largest positive contribution over the past year—and has done so for 17 consecutive weeks.

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