Financial Stress Index, May 2014

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. The latest STLFSI press release, with commentary, can be found here.

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.

For additional information on the STLFSI and its construction, see “Measuring Financial Market Stress” and the related appendix. As of 07/15/2010 the Vanguard Financial Exchange-Traded Fund series has been replaced with the S&P 500 Financials Index. This change was made to facilitate a more timely and automated updating of the FSI. Switching from the Vanguard series to the S&P series produced no meaningful change in the index.

2014-05-29: Financial Market Stress Falls for Third Straight Week

The St. Louis Fed Financial Stress Index (STLFSI) fell for the third straight week. For the week ending May 23, 2014, the STLFSI measured -1.228, down modestly from the previous week’s revised value of -1.223. The STLFSI remained at its lowest level since the week ending Feb. 23, 2007.

Over the past week, nine of the 18 indicators contributed negatively to the weekly change in the STLFSI, the same number as the previous week. The largest negative contribution was made by the yield spread between 3-month commercial paper and 3-month Treasury bills (CPS_3mo), followed by the Chicago Board Options Exchange Market Volatility Index (VIX). Six of the 18 indicators contributed positively to the weekly change—also unchanged from the previous week. The largest positive contribution was accounted for by the Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo).

The STLFSI was below its year-earlier level for the fifth week out of the past six. Over the past 52 weeks, 13 of the 18 indicators contributed negatively to the change in the STLFSI, unchanged from the previous week. The largest negative contribution was made by the yield spread between corporate Baa-rated bonds and 10-year Treasury securities (Corp_CRS). Over the past year, two indicators contributed positively to the index, three fewer than the previous week. The largest positive contribution to the STLFSI over the past year was made by the expected inflation rate over next 10 years (BIR_10yr). The STLFSI has been below zero for 125 consecutive weeks.

All photography by Jared Chambers