Financial Market Stress Declines for First Time in Four Weeks

Financial market stress fell modestly in the latest reporting week, the first decline in four weeks. For the week ending Dec. 26, 2014, the St. Louis Fed Financial Stress Index (STLFSI) measured -0.989, down from the previous week’s revised value of -0.840. The previous week’s value was the highest reading of the STLFSI since the week ending July 12, 2013.

Over the past week, nine of the 18 indicators contributed negatively to the weekly change in the STLFSI. The two largest negative contributions were made by 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, eight indicators made positive contributions to the STLFSI. The largest positive contribution was made by the TED spread, the difference in the yield between 3-month Treasury bills and 3-month Eurodollars (TED).

Over the past year, 11 of the 18 indicators made a positive contribution to the index and seven of the indicators made a negative contribution to the change in the STLFSI. The largest positive contribution was made by the expected inflation rate over the next 10 years (BIR_10yr). The largest negative contribution over the past year was made by the yield on corporate Baa-rated bonds (BAA). The STLFSI has been below zero for a little more than three years (161 consecutive weeks).

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