Financial Market Stress Falls to a Five-Week Low

The St. Louis Fed Financial Stress Index (STLFSI) fell to a five-week low in the latest reporting period. For the week ending Aug. 29, 2014, the STLFSI measured -1.320, down slightly from the previous week’s revised value of -1.298; this was the third consecutive weekly decline. Year-to-date, the STLFSI has averaged -1.272, which is appreciably lower than the -1.102 average that prevailed over the same year-to-date period in 2013.

Over the past week, 11 of the 18 indicators contributed negatively to the change in the STLFSI, three more than the previous week. The largest negative contribution was made by the Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo). Three of the 18 indicators contributed positively to the change in the STLFSI over the
past week, four fewer than the previous week. The largest positive contribution was made by the market-based measure of inflation expectations over the next 10 years (BIR_10yr).

Over the past year, 15 of the 18 indicators contributed negatively to the change in the STLFSI and one indicator contributed positively. For the 14th consecutive week, the largest negative contribution over the past year was made by the Mlynch_BMVI_1mo. The Chicago Board Options Exchange Market Volatility Index (VIX) made the second largest negative contribution. The lone positive contribution was made by the yield spread between 3-month commercial paper and 3-month Treasury bills (CPS_3mo).

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