AXI measures the average unsecured funding cost of major commercial banks across maturities and thereby captures aggregate credit risk in the Korean debt and money markets, providing information that risk-free benchmarks inherently omit.
We construct an across-the-curve credit spread index (AXI) for the Korean credit market. AXI measures the average unsecured funding cost of major commercial banks across maturities and thereby captures aggregate credit risk in the Korean debt and money markets, providing information that risk-free benchmarks inherently omit. The index is constructed as the average of long-term and short-term components: the long term AXI aggregates credit spreads on senior unsecured bank bonds using issuance and transaction-volume weights, while the short-term AXI applies the same weighting scheme to certificates of deposit issued by major commercial banks. Our results show that the Korean AXI effectively captures major credit stress episodes. Furthermore, its co-movements with CDS spreads, exchange rates, and international yield differentials demonstrate that AXI reflects both domestic credit conditions and global financial pressures. Overall, the index offers a comprehensive, credit-sensitive adjustment to the Korean Treasury curve.
Marcus Burnett, Chief Executive Officer of SOFR Academy, said: “I am delighted to see the publication of the Korean AXI White Paper. The research represents an important contribution to the international development of credit-spread benchmark infrastructure and shows how the AXI framework can be adapted to reflect local market structure. By measuring unsecured bank funding costs across maturities, Korean AXI can help provide market participants and policymakers with a more complete view of credit conditions than risk-free benchmarks alone. We are grateful to Professor Jongsub Lee and his co-authors for their thoughtful and rigorous work, and we look forward to continued engagement on how transaction-based credit-spread measures can support resilient lending, hedging, and financial stability.”
Resources
The Korean AXI White Paper [English] is available for download here.
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SOFR Academy, Inc. reserves all rights in the methodologies and outputs disclosed in this document, the white paper, the updates to the white paper and on SOFR Academy, Inc.’s website, and in the copyright in this document, the white paper, the updates and on SOFR Academy, Inc.’s website. SOFR Academy, Inc. holds the exclusive word-wide rights to commercialize the intellectual property (IP) associated with Across-the-Curve Credit Spread Indices (AXI)TM and the Financial Condition Credit Spread Indices (FXI),TM this includes but is not limited to literary work, the algorithm / code, all trade secrets, know-how, trademarks, designs, copyright, whether or not registered or registrable or having to undergo any other process for grant, registration or the like. None of these rights may be used without a written license from SOFR Academy, Inc. SOFR is published by the Federal Reserve Bank of New York (The New York Fed) and is used subject to The New York Fed Terms of Use for Select Rate Data. The New York Fed has no liability for your use of the data. Neither AXI nor FXI are associated with, or endorsed or sponsored by, The New York Fed. SOFR Academy is not affiliated with the New York Fed.
SOFR Academy, Inc. provides financial education and market data to empower corporations, financial institutions, governments, and individuals to make better decisions. The Firm’s panel of advisors includes academics from Tsinghua University, Harvard University, the University of California Berkeley, New York University, Oxford University and London Business School, as well as experienced financial services professionals. SOFR Academy is also driving the operationalizing of AXI and FXI as credit spread add-ons for near Risk-Free-Rates for use in lending and derivative markets. SOFR Academy is a member of the Asia Pacific Loan Market Association (APLMA), American Economic Association (AEA), the Loan Syndications and Trading Association (LSTA), the International Swaps and Derivatives Association (ISDA), the Bankers Association for Finance and Trade (BAFT) which is a wholly owned subsidiary of the American Bankers Association (ABA), and the U.S. Chamber of Commerce (USCC). For more information, please visit SOFR.org