Financial Market Stress Is Highest in Eight Weeks

Financial market stress rose modestly in the latest reporting week, the third increase in the past four weeks. For the week ending Dec. 12, 2014, the St. Louis Fed Financial Stress Index (STLFSI) measured -0.942, up modestly from the previous week’s revised value of -1.080. The latest reading of the STLFSI was its highest since the week ending Oct. 17, 2014.

Over the past week, nine of the 18 indicators contributed positively to the weekly change in the STLFSI, six fewer than the previous week. The two largest positive contributions were made by the Chicago Board Options Exchange Market Volatility Index (VIX) 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, seven indicators made negative contributions to the STLFSI, which was five more than the previous week. The largest negative contribution was made by the yield on corporate Baa-rated bonds (BAA).

Over the past year, nine of the 18 indicators made a positive contribution to the index and nine of the indicators made a negative contribution to the change in the STLFSI. For the eighth consecutive week, the expected inflation rate over the next 10 years (BIR_10yr) made the largest positive contribution. The largest negative contribution over the past year was made by the BAA.

Note that the St. Louis Fed will not send a press release about the index during the week of Dec. 22-26, 2014, though the data will be updated on Dec. 24 in the Federal Reserve Economic Data (FRED) database. The next release will occur on Jan. 2, 2015. The index will resume its usual release schedule on Jan. 8, 2015.

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