In a recent study, CRA’s Viktor Tsyrennikov assessed the Across-the-Curve Credit Spend Index (AXI)—a transparent, transaction-based measure of wholesale bank funding costs—as a complement to the Secured Overnight Financing Rate (SOFR), summarizing its behavior, construction, and loan-pricing implications.
Until recently, banks had routinely tied revolving credit facilities to credit-sensitive benchmarks such as the London Interbank Offered Rate (LIBOR), however because LIBOR was built on panel bank submissions rather than broad transaction data, it was manipulated by some contributors to influence rates and mask funding stress. As a result, regulators retired LIBOR in favor of transaction-based, IOSCO-aligned rates such as SOFR.
AXI, a transaction-based credit spread index, complements SOFR by restoring credit sensitivity lost in the transition from LIBOR. Unlike SOFR alone, SOFR+AXI more accurately reflects banks’ true funding costs, especially during periods of financial stress, offering significant economic value for loan pricing.
