Financial Market Stress Declines for Third Consecutive Week


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

Financial market stress declined last week for the third week in a row, according to the St. Louis Fed Financial Stress Index.  For the week ending Sept. 18, the index measured -0.715, a modest decline from the previous week’s revised value of -0.684. Four weeks ago, the index reached its highest point in more than 3 ½ years, hitting a revised value of -0.525.

STLFSI Weekly Change graph

Over the past week, 11 of the 18 indicators contributed positively to the weekly change in the index, four more than the previous week. The two largest positive weekly contributions were made by the interest-rate differential between the 3-month Libor rate and the overnight index swap rate (LiborOIS_3mo) and by the yield on corporate Baa-rated bonds (BAA). Five indicators made a negative contribution over the past week, five fewer than the previous week. The two largest negative contributions were made by the index’s two volatility measures: the  Chicago Board Options Exchange Market Volatility Index (VIX) and the Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo).

STLFSI Yearly Change Graph

Over the past year, 13 of the 18 indicators made a positive contribution to the index, one fewer than the previous week. Five indicators made a negative contribution, one more than the previous week. For the third consecutive week, the two largest positive contributions over the past year were made by the VIX and by the expected inflation rate over the next 10 years (BIR_10yr). The two largest negative contributions were made by the yields on 10-year Treasury securities (Treas10y) and on 30-year Treasury securities (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.

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