Methodology
An honest number, built from public data you can check yourself
The Stress Diffusion Index compresses 70+ indicators across eight interconnected domains into a single 0–100 reading. Nothing is proprietary or hidden — every input traces back to a government or central-bank source, and every transformation is documented below.
How the index is computed
Collect raw indicators
Every business day we pull 70+ public series across the eight domains — funding spreads, auction tails, dealer balance sheets, credit spreads, fiscal ratios, dollar funding bases and official backstops — from primary government and central-bank sources.
Normalize to z-scores
Each indicator is standardized against its own trailing distribution, so a move is measured in standard deviations from normal. This lets us compare a basis-point spread against a percentage ratio on one honest scale.
Map to a 0–100 percentile
Z-scores are converted to historical percentiles using 20+ years of data, including every major stress episode since 2004. A reading of 80 means conditions are tighter than 80% of all observed history.
Composite into domains, then the SDI
Indicators roll up into eight weighted domain scores. The Stress Diffusion Index is a breadth-aware composite of those domains — it rises fastest when stress is spreading across domains, not just spiking in one.
The four-level stress scale
Every indicator, domain and the headline SDI use the same plain-language scale, so a novice and a desk strategist read the same signal.
Conditions are benign. Stress is contained within domains.
SDI 0 – 25
Early pressure building in one or more domains.
SDI 25 – 40
Stress is propagating across independent domains.
SDI 40 – 60
Broad, self-reinforcing stress across the system.
SDI 60 – 100
The eight domains
Risk does not live in one place. The SDI watches eight domains that historically transmit stress to one another, and weights breadth so spreading pressure is caught early.
Treasury & Sovereign
Demand at government debt auctions and the plumbing of the safest market on earth.
Official Backstops & Intervention
Fed emergency facilities that activate when normal dollar funding channels fail — usage is stress revealed, not stress building.
Funding & Liquidity
Overnight lending rates that banks use to fund themselves day to day.
Credit Conditions
The extra yield investors demand to hold corporate over government debt.
Volatility & Market Regime
How violently markets expect prices to swing over the coming month.
Housing & Real Estate
Home prices, construction activity, and mortgage conditions that signal consumer-side stress.
Labor & Consumer
Employment, consumer sentiment, and credit usage that reveal household economic pressure.
Monetary & Fiscal Trajectory
The trajectory of government debt, deficits, Fed balance sheet, and interest costs.
Data sources
Every series is sourced from primary, publicly available data. We do not use surveys, sentiment or proprietary feeds.
FRED
Federal Reserve Bank of St. Louis
Rates, spreads, monetary aggregates
TreasuryDirect
U.S. Department of the Treasury
Auction results, issuance, debt outstanding
OFR
Office of Financial Research
Repo, money-market funds, financial stress
CFTC
Commodity Futures Trading Commission
Positioning, leverage in futures markets
CBO
Congressional Budget Office
Deficit, interest cost and revenue projections
SIFMA
Securities Industry and Financial Markets Assoc.
Primary dealer positions, trading volume
An important caveat
The SDI is a coincident indicator of systemic stress, not a market forecast or trading signal. It tells you how tight conditions are right now relative to history. FiscalAlpha does not provide investment advice.