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Across-the-Curve Credit Spread Indices

Author

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  • Berndt, Antje

    (Australian National U)

  • Duffie, Darrell

    (Stanford U)

  • Zhu, Yichao

    (Australian National U)

Abstract

This note presents a preliminary approach to the design of an across-the-curve credit spread index (AXI). The index is a measure of the recent average cost of wholesale unsecured debt funding for publicly listed U.S. bank holding companies and their commercial banking subsidiaries. This may be a useful benchmark for bank lending and related derivatives risk management applications. The index is a weighted average of credit spreads for unsecured debt instruments with maturities ranging from overnight to five years, with weights that reflect both transactions volumes and issuance volumes. We provide preliminary illustrative output of the bond-based component of AXI using TRACE secondary-market price and volume data from 2002-2019. We have only extremely preliminary estimates of the short-maturity (money-market) spread component.

Suggested Citation

  • Berndt, Antje & Duffie, Darrell & Zhu, Yichao, 2020. "Across-the-Curve Credit Spread Indices," Research Papers 3884, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3884
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    References listed on IDEAS

    as
    1. Duffie, Darrell & Dworczak, Piotr, 2021. "Robust benchmark design," Journal of Financial Economics, Elsevier, vol. 142(2), pages 775-802.
    2. Urban Jermann, 2024. "Interest Received by Banks during the Financial Crisis: LIBOR vs Hypothetical SOFR Loans," Journal of Financial Services Research, Springer;Western Finance Association, vol. 65(2), pages 141-152, June.
    3. Darrell Duffie & Jeremy C. Stein, 2015. "Reforming LIBOR and Other Financial Market Benchmarks," Journal of Economic Perspectives, American Economic Association, vol. 29(2), pages 191-212, Spring.
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    Cited by:

    1. Darrell Duffie & Cooperman Harry & Stephan Luck & Zachry Wang & Yilin Yang, 2022. "Bank Funding Risk, Reference Rates, and Credit Supply," Staff Reports 1042, Federal Reserve Bank of New York.
    2. Claudio Fontana, 2022. "Caplet pricing in affine models for alternative risk-free rates," Papers 2202.09116, arXiv.org, revised Jan 2023.
    3. Urban Jermann, 2024. "Interest Received by Banks during the Financial Crisis: LIBOR vs Hypothetical SOFR Loans," Journal of Financial Services Research, Springer;Western Finance Association, vol. 65(2), pages 141-152, June.
    4. David Skovmand & Jacob Bjerre Skov, 2022. "Decomposing LIBOR in Transition: Evidence from the Futures Markets," Papers 2201.06930, arXiv.org, revised Mar 2022.
    5. Klingler, Sven & Syrstad, Olav, 2021. "Life after LIBOR," Journal of Financial Economics, Elsevier, vol. 141(2), pages 783-801.
    6. Saroyan, Susanna, 2022. "Counterparty choice, maturity shifts and market freezes: lessons from the e-MID interbank market," INET Oxford Working Papers 2022-28, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    7. Damiano Brigo & Cristin Buescu & Marco Francischello & Andrea Pallavicini & Marek Rutkowski, 2022. "Nonlinear Valuation with XVAs: Two Converging Approaches," Mathematics, MDPI, vol. 10(5), pages 1-31, March.
    8. Karol Gellert & Erik Schlogl, 2021. "Short Rate Dynamics: A Fed Funds and SOFR Perspective," Research Paper Series 420, Quantitative Finance Research Centre, University of Technology, Sydney.

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