Financial Market Stress Falls to Lowest Level in Three Months

Financial market stress fell for the third week in the past four, according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending April 18th, 2014, the STLFSI measured -1.108, down slightly from last week’s revised value of -1.092—and its lowest level since the week ending Jan. 17, 2014. The shaded area indicates a U.S. recession.

Over the past week, nine of the 18 indicators contributed negatively to the weekly change in the STLFSI, unchanged from the previous week. The largest negative contribution was made by the expected inflation rate over next 10 years (BIR_10yr), followed closely by the Chicago Board Options Exchange Market Volatility Index (VIX). Five of the 18 indicators contributed positively to the change in the STLFSI over the past week. The largest positive contribution, by far, was accounted for by Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo). Bond market volatility was the largest negative contribution in the previous week.

Over the past 52 weeks, 10 of the 18 indicators contributed negatively to the change in the STLFSI, one more than the previous week, and seven indicators contributed positively to the index. Like last week, the largest negative contribution to the STLFSI over the past year was made by the spread between Baa-rated corporate bonds and 10-year U.S. Treasury securities (Corp_CRS), and the largest positive contribution was accounted for by the expected inflation rate over next 1 0 years (BIR_10yr).

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