COVID-19 Financial Data Tracking

In the FRED® graphs above, you can see the correlation between the inverted yield curve and the onset of economic recessions (the gray bars) in the United States. Specifically, the first graph shows the difference in yields between U.S. government bonds maturing in 10 years and U.S. government bonds maturing in 2 years. This difference is one definition of "the term premium." Because longer maturity bonds usually offer higher yields than shorter maturity bonds, the line is usually above the horizontal axis at zero. Here, when the yield curve inverts, the 2-year yield is greater than the 10-year yield and the term premium becomes negative: Historically, such an inversion has predicted a recession in about a year. The second graph shows a similar phenomenon by comparing the difference between bonds maturing in 10 years and 3 months.

See: https://research.stlouisfed.org/publications/page1-econ/2019/11/29/should-we-fear-the-inverted-yield-curve

As noted with the yield curve charts above, interest-rate spreads are a common way to measure various types of risk. These two charts are one measure of default risk in the corporate bond market. In each case, two different investment grades of corporate bond yields are compared to yields on a “safe” asset—that is, yields on a comparable Treasury security. As seen in the charts, default risk in the corporate bond market tends to rise before and during recessions, as slower economic growth, and thus weaker growth of earnings by bond issuers, implies a rising probability that some firms may not be able to make interest payments on the debt they have issued. Not surprisingly, spreads on lower-rated bonds (high-yield bonds) tend to be larger.

See: https://www.frbsf.org/economic-research/publications/economic-letter/2008/march/corporate-bond-credit-spread/

The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. The Federal Open Market Committee (FOMC) meets eight times a year to determine the federal funds target rate. This is the central interest rate in the U.S. financial market. It influences other interest rates such as the prime rate, which is the rate banks charge their customers with higher credit ratings. Additionally, the federal funds rate indirectly influences longer- term interest rates such as mortgages, loans, and savings, all of which are very important to consumer wealth and confidence

See: https://www.stlouisfed.org/education/page-one-economics-classroom-edition/monetary-policy-ample-reserve

The yield, or return on purchasing a bond, depends on its face value, price, and time to maturity. Because the bond's maturity and its face value are fixed, the price and yield and inversely related. When demand for bonds is high the price rises and the yield falls. Bonds issued by the U.S. Treasury are considered to be "default-free" and tend to attract risk-averse investors. In the graph, the yield on the actively traded, non-inflation-indexed, 10-year Treasury bonds issues is adjusted to constant maturities.

See: https://research.stlouisfed.org/publications/page1-econ/2019/11/29/should-we-fear-the-inverted-yield-curve

The TED spread is the difference in yield between the 3-month LIBOR (the average interest rate at which leading banks borrow funds for a period of three months from other banks in the London market) and the 3-month Treasury bill (the yield of a Treasury security that matures in three months).
The TED spread is always going to be positive unless the risk on Treasuries increases much more than what current credit conditions warrant. This scenario could be caused by an increased risk of (partial) default by the U.S. government while credit conditions for U.S. banks remain unchanged. That’s unlikely to happen. Note that the series is lagged by one week because the LIBOR series is lagged by one week due to an agreement with the source

See: https://fredblog.stlouisfed.org/2016/07/ted-on-fred/

The VIX is a measure of market expectations of near-term volatility conveyed by S&P 500® index option prices and is a very popular measure to gauge financial markets. Deviations above zero signify financial markets are tightening—heightened stress—while deviations below zero signify financial markets are loosening.

See: https://research.stlouisfed.org/publications/economic-synopses/2017/11/03/financial-conditions-indexes/

The St. Louis Fed Financial Stress Index measures the degree of financial stress in the markets and is constructed from 18 weekly data series: seven interest rate series, six yield spreads and five other indicators. Each of these variables captures some aspect of financial stress. Accordingly, as the level of financial stress in the economy changes, the data series are likely to move together.

How to Interpret the Index:
The average value of the index, which begins in late 1993, is designed to be zero. Thus, zero is viewed as representing normal financial market conditions. Values below zero suggest below-average financial market stress, while values above zero suggest above-average financial market stress.

The total assets of the Federal Reserve Banks, as reflected in the H 4.1 release "Consolidated Statement of Condition of All Federal Reserve Banks" is shown on the left (https://www.federalreserve.gov/releases/h41/current/). The total assets include Treasury securities, Mortgage Backed Securities, and Repurchase agreements, in addition to other assets.