Financial Market Stress Rises for Third Straight Week

Financial market stress increased for the third consecutive week according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending Feb. 7, 2014, the STLFSI measured −0.843, its high-est level in a little more than two months.

Over the past week, nine of the 18 indicators contributed positively to the change in the STLFSI; this was two fewer than the previous week. The STLFSI’s two financial market volatility measures were key contribu-tors over the past week. For the third consecutive week, the Chicago Board Options Exchange Market Volatility Index (VIX) made the largest positive contribution. The next largest positive contribution was accounted for by the Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo). The largest negative contribution was made by the TED spread, which is the difference between yields on three-month Treasury bills and three-month Eurodollars.

Financial market stress remained above its year-earlier level for the third consecutive week. Over the past 52 weeks, nine of the 18 indicators contributed negatively to the change in the STLFSI, while eight indicators contributed positively. For the sixth consecutive 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). For the 21st consecutive week, the expected inflation rate over the next 10 years (BIR_10yr) made the largest positive contribution over the past year.

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