Financial Market Stress Is Highest in Six Weeks

Financial market stress rose modestly in the latest reporting week, more than reversing the previous week’s decline. For the week ending Dec. 5, 2014, the St. Louis Fed Financial Stress Index (STLFSI) measured -1.075, up modestly from the previous week’s revised value of -1.142. The latest reading of the STLFSI is its highest since the week ending Oct. 24, 2014.

Over the past week, 15 of the 18 indicators contributed positively to the weekly change in the STLFSI, 10 more than the previous week. The two largest positive contributions were made by the expected inflation rate over the next 10 years (BIR_10yr) and the yield spread between the Merrill Lynch High-Yield Corporate Master II Index and the 10-year Treasury security (HighYield_CRS). Over the past week, two indicators made negative contributions to the STLFSI, 10 fewer than the previous week. The largest negative contribution was made by the yield spread between the three-month London Interbank Offering Rate and the three-month overnight index swap (LiborOIS_3mo).

Over the past year, 10 of the 18 indicators made a negative contribution to the index and eight of the indicators made a positive contribution to the change in the STLFSI. For the eighth consecutive week, 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.