Chinese AXI can work with the depository-institutions repo rate (DR) to serve as a reference credit spread for Chinese commercial banks to conduct credit pricing and risk management.
NEW YORK and BEIJING — July 27, 2022, 10:00 ET — SOFR Academy, Inc., a digital education and market information provider, today welcomed the publication of the Chinese Across-the-Curve Credit Spread Indices (AXI) White Paper by XIN Fintech Research Center, Tsinghua University People’s Bank of China School of Finance (PBCSF). The Chinese AXI White Paper is part of a broader set of international ‘RFRx’ feasibility studies. Chinese AXI reflects the average funding costs for major Chinese commercial banks and can work with the depository institutions repo rate (DR) to serve as a reference rate for loans, credit pricing, risk management and other applications.
The Chinese AXI paper was authored jointly by Postdoctoral Researcher Zhiyong Li, PhD candidate Zijian Zhang, Assistant Professor Fudong Zhang, and The Xinyuan Chair Professor of Finance and Associate Dean at Tsinghua PBCSF, Xiaoyan Zhang. The construction follows the approach laid out by Berndt, Duffie, and Zhu (2020). The Chinese AXI paper also discusses the possible applications of AXI in the Chinese market.
AXI is a forward-looking credit spread index that may be used in conjunction with near risk-free rates, such as the depository-institutions repo rate (DR), to form a credit sensitive interest rate. AXI is simply a weighted average of the credit spreads of unsecured bank funding transactions spanning maturities from short term out to multiple years, with weights that reflect both transaction volumes and issuance volumes. AXI was conceived in an academic paper by Finance Professor Antje Berndt of Australian National University (ANU), Professor Darrell Duffie who is the Dean Witter Distinguished Professor of Finance at Stanford Graduate School of Business, and Dr Yichao Zhu, also of ANU.
Taking an across-the-curve approach including short-term and longer-term transactions maximizes number of underlying transactions. Further, AXI automatically adapts to future changes in bank funding composition, thereby ensuring the index retains it robustness and representativeness throughout time.
The Xinyuan Chair Professor of Finance and Associate Dean at Tsinghua PBCSF, Xiaoyan Zhang, said, “In recent years the Chinese government has made progressive efforts to promote the opening-up of its capital market. A Chinese AXI would be an important additional step towards market transparency. We are pleased to leverage our expertise and insights at the PBC School of Finance, Tsinghua University, in the development of the Chinese AXI White Paper. With the continued progress of the interest rate liberalization in China, especially the implementation of the depository-institutions repo rate as the benchmark interest rate, the Chinese AXI can serve as a reference credit spread for commercial banks to conduct credit pricing and risk management. Regulators and other market participants can also use AXI as indicators to gauge the funding costs for Chinese commercial banks.”
Chief Executive Officer of SOFR Academy, Marcus Burnett, said, “I am delighted about the publication of the Chinese AXI White Paper. We are grateful to Professor Zhang and her academic collaborators at Tsinghua University’s PBC School of Finance who are very well positioned to complete this work. Given China’s deepening economic and financial linkages to the United States and the rest of the world, the Chinese AXI may be helpful for a wide range of market participants and policymakers. It is also interesting to note that the majority of recent Chinese commercial bank funding transactions are occurring around the 2–3-year maturity point, which is a trend consistent with large U.S. Banks and quantified through US-Dollar AXI.”
The English version of the Chinese AXI White Paper is available for download here. The Chinese version of the Chinese AXI White Paper is available for download here.
About XIN Fintech Research Center, PBCSF Tsinghua University
XIN Fintech Research Center, sponsored by Xinyuan Group, which sits on the platform provided by the Tsinghua PBCSF, has been focusing on financial research and training. The Center aims to apply scientific methods and models to analyze the data from the industry, and study the financial market with a combination of theory and practice through quantitative methodologies. Besides, the Center would conduct education for financial institutions and related areas, as well as promoting the development and innovation of fintech. The PBC School of Finance (PBCSF), Tsinghua University’s 17th school, was founded on March 29, 2012 as a joint venture between the University and the People’s Bank of China (PBC). It was built on the successes of the Graduate School of PBC, an esteemed school founded by the Central Bank in the early 1980s. With the mission of promoting excellence in the finance industry and financial regulation through top-notch education and cutting-edge research, Tsinghua PBCSF, following advanced education modes of international financial programs and business schools, is committed to building a world-class platform for financial education, finance, and policy research.
Website: www.pbcsf.tsinghua.edu.cn
WeChat: tsinghua_pbcsf
LinkedIn: Tsinghua PBCSF
About SOFR Academy
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 to near risk-free rates for use in lending and derivative markets. SOFR Academy is a member of the American Economic Association (AEA), the Loan Syndications and Trading Association (LSTA), the International Swaps and Derivatives Association (ISDA), the Asia Pacific Loan Market Association (APLMA), 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).
Website: www.SOFR.org
LinkedIn: SOFRacademy
About the Secured Overnight Financing Rate
SOFR is published by the Federal Reserve Bank of New York and is subject to The New York Fed’s Terms of Use. The New York Fed has no liability for your use of the data. Neither AXI or FXI are associated with, endorsed, or sponsored by The New York Fed.
