SOFR Academy provides IOSCO-aligned Across-the-Curve Credit Spread Indices (AXI)® to supplement SOFR. These indices offer a robust measure of U.S. bank funding costs across the yield curve, enabling the creation of credit-sensitive rates for financial instruments.
Funding
Funding not disclosed
Founders
Product
Problem
The transition away from LIBOR has created a need for credit-sensitive benchmarks that accurately reflect bank funding costs and enhance the stability of financial markets. Existing benchmarks may not fully capture the nuances of bank funding across the yield curve, potentially leading to mispriced risk and reduced market efficiency.
Solution
SOFR Academy provides IOSCO-aligned benchmark credit spreads, specifically the Across-the-Curve Credit Spread Indices (AXI)®, designed to supplement SOFR. These indices are calculated using a broad pool of market transactions, ensuring they reflect the true costs of wholesale unsecured debt funding for U.S. bank holding companies. By adopting an across-the-curve methodology, AXI captures a wider range of funding transactions, providing a more robust and representative measure of bank funding costs than short-term, unsecured market rates. This approach ensures that credit-sensitive rates derived from AXI and SOFR automatically adapt to changes in bank funding composition, maintaining their effectiveness even during periods of market stress.
Target Audience
Primary customers include commercial banks, principal trading firms, online e-brokers, insurers, non-financial corporates, asset managers, and pension funds seeking credit-sensitive benchmarks to enhance their financial instruments and risk management strategies.
Features
- **Across-the-Curve Credit Spread Indices (AXI)®**: Benchmark credit spreads calculated using a weighted average of transaction volumes and maturities of U.S. bank unsecured debt instruments, ranging from overnight to five years.
- **IOSCO Principles Alignment**: Indices are developed and administered in accordance with IOSCO’s Principles for Financial Benchmarks, with Principles 6 (Benchmark Design), 7 (Data Sufficiency), and 9 (Transparency of Benchmark Determinations) fully implemented as confirmed by IBM Promontory.
- **Transaction-Based Methodology**: Spreads are derived solely from observable, bona fide, arms-length transactions, excluding indicative bids/offers or estimates to ensure data integrity.
- **Credit-Sensitive Rate Construction**: AXI is designed to be used in conjunction with SOFR (e.g., overnight SOFR, CME Term SOFR) to create credit-sensitive interest rates for loans and derivatives.
- **Automated Adaptation**: The indices automatically adjust to evolving bank funding composition, ensuring sustained representativeness and robustness over time.
- **Transparency and Documentation**: Detailed methodology documentation and underlying statistical metrics are published daily by the authorized benchmark administrator, with historical data available since 2016.