Financial Market Stress Falls to Its Lowest Level on Record

The St. Louis Fed Financial Stress Index (STLFSI) fell to its lowest level on record (back to December 1993) for the week ending May 30, 2014. In the current reporting week, the STLFSI measured -1.281, down modestly from the previous week’s revised value of -1.237. The STLFSI’s previous all-time low was registered during the week ending Feb. 23, 2007.

Over the past week, 13 of the 18 indicators contributed negatively to the weekly change in the STLFSI; this was four more than the previous week. The largest negative contribution was made by the expected inflation rate over the next 10 years (BIR_10yr), followed closely by the Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo) and the Chicago Board Options Exchange Market Volatility Index (VIX). Three of the 18 indicators contributed positively to the weekly change, three fewer than the previous week. The largest positive contribution was accounted for by the yield spread between high-yield corpo-rate bonds and 10-year Treasury securi-ties (HighYield_CRS).

The STLFSI was below its year-earlier level for the sixth week in the past seven weeks. Over the past 52 weeks, 15 of the 18 indicators contributed negatively to the change in the STLFSI, two more than the previous week. The largest negative contribution was made by the Mlynch_BMVI_1mo, followed by the yield spread between corporate Baa-rated bonds and 10-year Treasury securities (Corp_CRS). Over the past year, two indicators contributed positively to the index, which was unchanged from the previous week.

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