Financial Market Stress Declined Before Recent Volatility


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

Financial stress declined slightly in the latest reporting week, according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending June 24, the STLFSI measured -0.911, a decrease of 0.040 from the previous week’s revised value of -0.871. Despite a few weeks with declines over the past month, the index remains above its month-ago (May 27) revised value of   -1.015. (It should be noted that this week’s stress reading likely does not reflect the market volatility starting June 24.)

STLFSI Weekly Change graph

Over the past week, nine of the 18 indicators contributed negatively to the weekly change in the index, three more than last week. The two largest negative contributions were made by the Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo) and by the difference between the Merrill Lynch High-Yield Corporate Master II Index and the 10-year U.S. Treasury security (HighYield_CRS). Seven indicators contributed positively to the weekly change in the index, three fewer than the previous week. The largest positive contribution was made by the Baa-rated corporate bond yield (BAA).

STLFSI Yearly Change Graph

Over the past year, 13 of the 18 indicators made positive contributions to the index, the same number as last week. Five indicators made negative contributions, which was also the same number as the previous week. The two largest positive contributions over the past year were made by the Chicago Board Options Exchange Market Volatility Index (VIX) and by HighYield_CRS. The largest negative contribution was made by 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.