Financial Market Stress Declines for Fifth Time in Six Weeks

Financial market stress declined slightly in the latest reporting week, according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending Nov. 28, 2014, the STLFSI measured -1.137, down modestly from the previous week’s revised value of -1.094. After rising continuously from the week ending Sept. 5, 2014, to the week ending Oct. 17, 2014, the STLFSI has declined in five of the past six weeks.

Over the past week, 12 indicators made negative contributions to the STLFSI, which was six more than the previous week. The two largest negative contributions to the weekly change in the STLFSI were made by the Chicago Board Options Exchange Market Volatility Index (VIX) and the Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo). Five of the 18 indicators contributed positively to the weekly change in the STLFSI, three fewer than the previous week. The two largest positive contributions were made by the yield spread between the Merrill Lynch High-Yield Corporate Master II index and the 10-year Treasury security (HighYield_CRS), and the expected inflation rate over the next 10 years (BIR_10yr).

Over the past year, 11 of the 18 indicators made negative contributions to the index and six of the 18 indicators contributed positively to the change in the STLFSI. The largest negative contribution was made by the yield on corporate Baa-rated bonds (BAA), and the largest positive contribution was made by the BIR_10yr.

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