Financial Market Stress Reaches Three-Year High


Please note: Data values previously published are subject to revision. For more information, refer to the vintage series in ALFRED®.

Financial market stress rose to its highest level in more than three years in the latest reporting week. For the week ending Aug. 21, the index measured -0.808, up sharply from the previous week’s revised value of -0.972 and the highest level since the week ending June 29, 2012. The index has increased for four consecutive weeks. (Normal financial market conditions are represented by zero.)

STLFSI Weekly Change graph

Over the past week, 11 indicators contributed positively to the weekly change, four more than the previous week. The largest positive weekly contribution was made by the Chicago Board Options Exchange Market Volatility Index (VIX), followed by the yield spread between 3-month commercial paper and 3-month Treasury bills (CPS_3mo) and by the expected inflation rate over the next 10 years (BIR_10yr). Five of the 18 indicators contributed negatively to the weekly change in the index, three fewer than the previous week. The largest negative contributions were made by the yields on 10- and 30-year Treasury securities (Treas10y and Treas30y).

STLFSI Yearly Change Graph

Over the past year, 13 of the 18 indicators made a positive contribution to the index, one more than the previous week. For the fifth consecutive week, the two largest positive contributions over the past year were made by the BIR_10yr and by the Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo). Five indicators made a negative contribution, one fewer than the previous week. The largest negative contribution was made by the yield on the Treas30y.

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.