The St. Louis Fed’s Financial Stress Index for the week ended September 20 showed markets were less comfortable than in the prior week. The reading was up to -1.284 after -1.312, a level that is still lacking any significant indication of market stress, but does suggest some unease creeping into conditions.
Equity markets haven’t changed much in recent weeks in spite of a noisy news cycle. That could change when the index is next reported since there were major developments with a decision by the House of Representatives to impeach President Trump.
Treasury markets were riled by cash crunch that drove up the effective fed funds rate around the tax payment deadline of September 15. That seems to settled with the New York Fed performing a series of open market operations to relieve the situation then and through the end of the quarter.
Those watching the inversion of the yield curve as a signal of recession saw a pull back in the spread between the 3-month and 10-year yields to -0.11, its smallest since early August. The spread between the 2-year and 10-year yield — more closely followed by Fed policymakers — was 0.07, a third week out from a brief inversion in the August 26 weekly average.
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