The St. Louis Fed’s Financial Stress Index faded to -1.432 in the week ended December 20 after -1.350 in the prior week. It was a fairly large dip in the index and brought it to a low not seen since -1.448 in the December 8, 2017 week during a period of very low stress for market in the second half of that year.
The stock market wasn’t a lot higher at the end of the December 20 week, but it did manage to touch on a new record.
The gap between Treasury yields widened again and pointed to further reduction in recession risks. The space isn’t back to historical norms, but it is starting to behave more in line with fewer risks to the outlook. The spread between the 3-month bill and 10-year note reached 37 basis points, its widest since January. The spread between the 2-year and 10-year notes — the one Fed policymakers pay greater attention to — was at 28 basis points, its widest since June.
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