Financial Market Stress Declines for Fourth Consecutive Week


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

Financial stress continued to decline last week, according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending Oct. 30, the index measured -0.879, down from the prior week’s revised value of -0.847. The latest reading is the lowest in 11 weeks and marks the fourth consecutive week of declines. 

STLFSI Weekly Change graph

Over the past week, 11 of the 18 indicators contributed negatively to the weekly change in the index, two more than the previous week. The two largest negative contributions were made by the 3-month Treasury-Eurodollar spread (TED) and by the spread between 3-month commercial paper and 3-month Treasury bill (CPS_3mo).  As both of these spreads are measures of the credit premium over the 3-month Treasury bill, their negative contributions over the past week are likely due to recent increases in the 3-month Treasury bill rate. Five indicators contributed positively to the weekly change in the index, two fewer than the previous week. The largest positive contribution was made by the Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo). 

STLFSI Yearly Change Graph

Over the past year, 12 of the 18 indicators made a positive contribution to the index, one more than the previous week.  Six indicators made a negative contribution, one fewer than the previous week. The two largest positive contributions over the past year were made by the 10-year breakeven inflation rate (BIR_10yr) and by the Merrill Lynch High-Yield Corporate Master II Index (Mlynch_HighYld_MasterII). The largest negative contribution over the past year was made by the Mlynch_BMVI_1mo.

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.