Financial Market Stress Rises Sharply

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

Financial market stress rose sharply for the second straight week, according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending Aug. 28, the index measured -0.513, up markedly from the previous week’s revised value of -0.811. (Normal financial market conditions are represented by zero.) The latest increase (0.298) was more than two standard deviations above the average weekly change. The index has increased for five consecutive weeks; it is at its highest level since the week ending Jan. 13, 2012.

Over the past week, 12 indicators contributed positively to the weekly change, one more than the previous week. The largest positive weekly contribution was made by the Chicago Board Options Exchange Market Volatility Index (VIX), followed by the Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo). Four of the 18 indicators contributed negatively to the weekly change in the index, one fewer than the previous week. The largest negative contribution was made by the three-month Treasury-Eurodollar yield spread (TED).

Over the past year, 14 of the 18 indicators made a positive contribution to the STLFSI, one more than the previous week. The two largest positive contributions over the past year were made by the equity market (VIX) and bond market (Mlynch_BMVI_1mo) volatility measures. Four indicators made a negative contribution, one fewer than the previous week. The largest negative contribution was made by the yield on 30-year Treasury securities (Treas30y).

For an explanation of the 18 component variables in the STLFSI, refer to the STLFSI Key.