A Case for AXI

Paper: arXiv 2509.03035

Authors: Viktor Tsyrennikov

Abstract

In the LIBOR era, banks routinely tied revolving credit facilities to credit-sensitive benchmarks. This study assesses the Across-the-Curve Credit Spread Index (AXI) – a transparent, transaction-based measure of wholesale bank funding costs – as a complement to SOFR, summarizing its behavior, construction, and loan-pricing implications. AXI aggregates observable unsecured funding transactions across short- and long-term maturities to produce a daily credit spread that is IOSCO-aligned and operationally compatible with SOFR-based infrastructure. The Financial Conditions Credit Spread Index (FXI) is a broader market companion to AXI and serves as its fallback. FXI co-moves closely with AXI in normal times; under stress, the correlation of daily changes exceeds 0.9 for economy-wide shocks and remains strong in bank-specific stress, around 0.8 during the Silicon Valley Bank episode. Empirically, AXI is strongly correlated with standard credit-spread measures and market-stress indicators and is inversely related to financial-sector performance. SOFR+AXI exhibits correlations with macroeconomic variables with the signs and magnitudes expected of a credit-sensitive rate. In loan-pricing applications, SOFR+AXI reduces funding risk and can support spread discounts of up to 65 basis points without lowering risk-adjusted returns. In stress scenarios, banks relying on SOFR-only pricing can fail to recover as much as 15 basis points on revolving credit lines over as little as three months. Taken together, AXI restores the credit sensitivity lost in the USD LIBOR transition while avoiding reliance on thin short-term markets, delivering significant economic value.

Complexity vs Empirical Score

• Math Complexity: 3.5/10
• Empirical Rigor: 6.5/10
• Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper provides a strong empirical analysis of the Across-the-Curve Credit Spread Index (AXI) as a credit-sensitive complement to SOFR, highlighting its behavior during bank stress events. While the underlying mathematics is primarily focused on volume-weighted averaging and correlation measures, the practical implications for loan pricing and risk management are thoroughly demonstrated.

Research Flowchart

  flowchart TD
    A["Research Goal: Evaluate AXI as a Credit-Sensitive<br>Complement to SOFR for Loan Pricing"] --> B["Data Inputs: Observable Unsecured Funding Transactions<br>& Macro/Financial Stress Indicators"]
    
    B --> C["Construct Indices: AXI (Bank Funding)<br>& FXI (Broad Market Fallback)"]
    
    C --> D["Empirical Analysis: Assess Correlation with<br>Credit Spreads & Stress Co-movement"]
    
    C --> E["Loan Pricing Simulations: Compare SOFR+AXI<br>vs. SOFR-Only in Normal & Stress Conditions"]
    
    D --> F["Findings: AXI matches stress indicators;<br>FXI & AXI correlate strongly (>0.8 to 0.9+)"]
    
    E --> G["Outcomes: SOFR+AXI enables up to 65 bps spread<br>discounts & prevents up to 15 bps funding loss in stress"]

Cited References (38)

1. Bank Funding Risk, Reference Rates, and Credit Supply (2025) — link
2. Bank Funding Risk, Reference Rates, and Credit Supply (2022) — link
3. Across-the-Curve Credit Spread Indices (2023) — link
4. Statement on Alternatives to USD LIBOR (2023) — link
5. Regarding Credit‑Sensitive Benchmarks in Lending (2019) — link
6. How Correlated Is LIBOR with Bank Funding Costs? (2020) — link
7. AXI/FXI Limited Assurance Review Report (2024)
8. Investigating causal relations by econometric models and cross-spectral methods (1969)

0 of 38 cited works are in the corpus; resolved via arXiv source bundles, Semantic Scholar and OpenAlex. Corpus-wide: 2518 linked papers.