Trader’s Narrative

The is an aggregate measure of the risks within the financial system. It incorporates yield spreads from money market, bond and equity markets. In one single number, it indicates the relative position of the current financial condition via the number of standard deviations from the average.

Similar to the TED spread, it peaked late last year, during the worst of the financial crisis. On October 10th 2008 it reached a low of -11.55. Since then, again confirming the TED spread and similar metrics, it has steadily recovered to pre-crisis levels.

After reachign a recent high of -0.492, the current reading is slightly lower at -0.58, implying that we are slightly under the average. The last time the Bloomberg Financial Conditions index was at this level was back in August 3rd 2007 (-0.5).

Source: Bloomberg

You can monitor it on Bloomberg’s website (see above link) and on the Bloomberg terminal by typing in FCW [GO].

To play Devil’s Advocate, it isn’t surprising to see the financial world back off from the ledge of the abyss when so many trillions of dollars were thrown at it. The real question is what will happen as a consequence of this epic largess.