Financial Market Stress Rises Again But Is Still Below Normal


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

Financial market stress continued to increase in the latest reporting week. For the week ending Jan. 15, the St. Louis Fed Financial Stress Index (STLFSI) measured -0.416, up from the previous week’s revised value of -0.495.  The increase is the eighth in the past 11 weeks. The index is at its highest level since the week ending Dec. 30, 2011. Still, the level of stress is below normal (0=normal conditions).

STLFSI Weekly Change graph

Over the past week, nine of the 18 indicators contributed positively to the weekly change in the index, two fewer than the previous week. The largest positive contributions were made by the Chicago Board Options Exchange Market Volatility Index (VIX) and by the expected rate of inflation over the next 10 years (BIR_10yr). Seven of the 18 indicators contributed negatively to the weekly change in the index, two more than in the previous week. The three largest negative contributions were made by:

  • the 3-month commercial paper yield less the 3-month Treasury bill rate (CPS_3mo);
  • the interest rate on the Merrill Lynch Asset-Backed Master BBB-rated bond (Mlynch_BBBAA); and
  • the 3-month Treasury-Eurodollar spread (TED).

STLFSI Yearly Change Graph

Over the past year, 15 of the 18 indicators made a positive contribution to the index and two indicators made a negative contribution. These numbers were unchanged for the third consecutive week. The two largest positive contributions over the past year were made by the Merrill Lynch High-Yield Corporate Master II Index (Mlynch_HighYld_MasterII) and by the yield on Baa-rated corporate bonds (BAA). For the fourth consecutive week, the largest negative contribution over the past year was made by the Merrill Lynch Bond Market Volatility Index (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.

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