The St. Louis Fed’s Financial Stress Index jumped to -1.208 in the week ended February 28 from a near record low of -1.594 in the prior week. The 0.386 rise is the largest one week increase since 0.536 in the week ended November 21, 2008. However, before sounding an alarm that markets are in distress, it is worth noting the the index was a +4.316 and near its record highs during the worst of the financial crisis. The two major shifts in the index really aren’t comparable. While the recent plunge in the stock market is worrisome, overall conditions remain without obvious strains.
Flight-to-safety has sent Treasury yields downward. Yields on the 3-month bill haven’t been this low since early 2018 and yields for notes are back to levels seen in late 2016 and with less distance between the 2- and 10-year notes. The gap between the 3-month bill and 2-year note was inverted by 14 basis points in the week average for February 28 and 21, widening the 3 basis points in the prior week. The space between 2- and 10-year note yields — which Fed policymakers tend to pay more attention to — did not invert and widened to 17 basis points in the February 28 week after 13 in the prior week.
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