Financial Market Stress Rises for Second Week

Financial market stress increased slightly for the second consecutive reporting week according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending Jan. 9, 2015, the STLFSI measured -0.851, up from the previous week’s revised value of -0.959. The STLFSI has increased in five of the past six weeks.

Over the past week, nine of the 18 indicators contributed positively to the weekly change in the STLFSI, which was two more than the previous week. The largest positive contribution was made by the Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo), followed by the Chicago Board Options Exchange Market Volatility Index (VIX). Eight indicators made negative contributions to the STLFSI over the past week, which was one fewer than the previous week. For the second straight week, the largest negative contribution was made by the yield on corporate Baa-rated bonds (BAA).

Over the past year, 10 of the 18 indicators made a positive contribution to the index, one more than the previous week. For the 10th straight 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). Eight of the indicators made a negative contribution to the change in the STLFSI over the past year, one fewer than the previous week. The largest negative contribution was made by the BAA, followed by the yield on the 30-year Treasury security (Treas30y).

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