Financial Market Stress Falls to Lowest Level in Three Months


Financial market stress fell for the seventh consecutive week, according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending March 6, 2015, the STLFSI measured  -1.062, its lowest level since the week ending Dec. 5, 2014.

STLFSI Weekly Change graph

Over the past week, 11 of the 18 indicators contributed positively to the STLFSI, nine more than the previous week. The largest positive contribution was made by the yield on corporate Baa-rated bonds (BAA), followed by the yield on the Merrill Lynch Asset-Backed Master BBB-rated security (Mlynch_BBBAA). Three of the 18 indicators contributed negatively to the weekly change in the STLFSI, 13 fewer than the previous week. The largest negative contribution was made by the expected inflation rate over the next 10 years (BIR_10yr), followed by the Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo).

STLFSI Yearly Change Graph

Over the past year, 10 of the 18 indicators made a positive contribution to the index and eight indicators made a negative contribution to the index. These numbers were unchanged from the previous week. For the seventh consecutive week, the largest positive contributions over the past year were made by the Mlynch_BMVI_1mo and the BIR_10yr. Like last week, the largest negative contribution over the past year was made by the BAA.

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

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The St. Louis Fed Financial Stress Index (STLFSI)

Link to STLFSI in FRED

The STLFSI measures the degree of financial stress in the markets and is constructed from 18 weekly data series: seven interest rate series, six yield spreads and five other indicators. Each of these variables captures some aspect of financial stress. Accordingly, as the level of financial stress in the economy changes, the data series are likely to move together.

How to interpret the index
The average value of the index, which begins in late 1993, is designed to be zero. Thus, zero is viewed as representing normal financial market conditions. Values below zero suggest below-average financial market stress, while values above zero suggest above-average financial market stress.

Note that the bar charts plot the change in the contribution from one week to the next or from the current week compared to the value 52 weeks earlier.

More information
For additional information on the STLFSI and its construction, see "Measuring Financial Market Stress" and the related appendix.

FRED (Federal Reserve Economic Data) is the main economic database of the Federal Reserve Bank of St. Louis.