Bloomberg financial conditions index closes at record high

Posted: 02 Nov 2013 by Carpe Diem Blog

The Bloomberg U.S. Financial Conditions Index (BFICUS) provides a daily statistical measure of the relative strength of the U.S. money markets, bond markets, and equity markets, and is considered an accurate gauge of the overall conditions in U.S. financial and credit markets. The values of the Bloomberg index are calculated as Z-scores, which measure the number of standard deviations that daily financial conditions lie above or below the average of financial conditions during the January 1994-June 2008 period. The Financial Conditions Index closed yesterday at 1.65, setting an all-time record index high going back to 1994 when the index started (see chart above).

The record high level for the BFICUS is a positive sign that financial markets are back on very solid ground, and overall financial conditions in the US money, bond and equity markets have returned to the strength and stability of the pre-recession period – and those strong financial conditions are supporting record-high stock market levels.

Update: The weekly Chicago Fed National Financial Conditions Index (NFCI) is a composite index based on 100 different financial indicators, and has proven to be a highly accurate leading indicator of financial stress at horizons of up to one year. Increasing risk, tighter credit conditions, and declining leverage are consistent with tightening financial conditions and produce positive values for the NFCI, while negative values indicate the opposite conditions. The NFCI fell to -0.87 last week, which is the lowest reading (strongest financial conditions) since the second week of February 2007, providing additional statistical evidence that financial conditions in the US have returned to pre-recession levels.