SOFR Academy Publishes White Paper on Full-Curve Credit Spread Indices (AXI and FXI) to Facilitate LIBOR Transition
NEW YORK–(COMMERCIAL THREAD) – SOFR Academy, Inc., a provider of digital education and data, announced the release of additional materials regarding the Full-curve credit spread indices (AXI). The indices are robustly defined, with forecast credit-sensitive spreads added to the Guaranteed Overnight Funding Rate (SOFR) to support the transition of lending products from the London Interbank Offered Rate (LIBOR) to US dollars. Additional materials include an AXI technical white paper and, courtesy of the Loan Syndications and Trading Association (LSTA), a draft concept concept of the SOFR + AXI term credit agreement.
The AXI technical white paper contains details on the AXI construction methodology, forward AXI rates, historical performance, underlying trade volumes, fallback language and more. The white paper is available for free download here.
The Term SOFR + AXI Concept Credit Agreement Document, produced with permission from LSTA, provides a detailed illustrative example of a credit agreement that references CME Term SOFR + AXI for a syndicated term credit facility. denominated in US dollars. The SOFR + AXI term concept document is available for free download here.
AXI will be useful for the business lending market, particularly multi-lender facilities, middle market lending and trade finance lending, where the transition from LIBOR to an overnight rate has been difficult. “There are not enough transactions left to calculate LIBOR. Indeed, banks are now financing themselves further from the yield curve, ”said Marcus Burnett, Managing Director of the SOFR Academy. “The transition from LIBOR has to be done once and it has to be done right,” Burnett added.
In a letter With the Alternative Reference Rates Committee (ARRC), the SOFR Academy is committed to operationalizing AXI in a thoughtful and measured manner that incorporates feedback and advice from a wide range of stakeholders and prioritizes stability of the global financial market.
About Full-Curve Credit Spread Indices (AXI and FXI)
AXI was discussed at the Federal Reserve Bank of New York conference Credit sensitivity workshops, which aimed to explore a credit-sensitive add-on to SOFR. AXI was conceived in an academic article by Professor Antje Berndt, Professor Darrell Duffie and Dr Yichao Zhu. Qualitatively, the index is a measure of the recent cost of wholesale unsecured debt financing for publicly traded US bank holding companies and their commercial banking subsidiaries. Quantitatively, the index is a weighted average of credit spreads for unsecured debt securities with maturities of up to five years, with weights that reflect both transaction volumes and transaction volumes. emission. FXI is an extension of AXI that integrates transaction data for non-bank issuers, which increases the volume of dollar hedged transactions by almost 500%. The resulting FXI spreads are highly correlated with AXI, especially in recent years (Berndt, Duffie & Zhu, 2020).
Potential licensees should send an email to: [email protected]
To learn more about AXI, please visit: SOFR.org/AXI
About the SOFR Academy
SOFR Academy is a United States-based digital education and data provider. The SOFR Academy advisory panel includes academics from Harvard University, MIT Sloan School of Management, University of California at Berkeley, New York University and Tsinghua University as well as experienced financial services professionals. The SOFR Academy is a member organization of the LSTA, the Bankers Association for Finance and Trade (BAFT), the Asia Pacific Loan Market Association (APLMA) and the International Swaps and Derivatives Association (ISDA). The firm is backed by a leading venture capital firm 8VC, and is based in New York.
About the guaranteed overnight rate
The SOFR Academy reserves all rights to the methodologies and results disclosed in this document, the white paper, updates to the white paper and on the SOFR Academy website. None of these rights can be used without a written license from SOFR Academy. SOFR Academy owns the worldwide exclusive rights to commercialize the intellectual property (IP) associated with AXI, this includes, but is not limited to, the literary work, the algorithm / code, all trade secrets, the know-how, trademarks, designs, copyright, whether or not they are registered or registrable or must undergo any other grant, registration or other procedure.