The St. Louis Fed’s Financial Stress Index eased a bit to -1.266 in the Friday, August 30 week. The reading is far from being a worrisome one in the historical context, but any sign of stress creeping into the financial sector is unwelcome with fears of an economic downturn intensifying. The report doesn’t capture the declines in the stock market early this week or the effects of a number of data reports that point to greater potential for a recession. However, it does take into account that Treasury yields on notes and bonds fell while the 3-month yield rose. There was an inverted yield curves for both the 3-month/10-year Treasurys for a fifth straight Wednesday-over-Wednesday and for the first time June 2007, the 2-year/10-year Treasury notes inverted. The warning lights are flashing.
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