Across-the-Curve Credit Spread Indices

Across-the-Curve Credit Spread Indices

By Antje Berndt, Darrell Duffie, Yichao Zhu
July 23,2020Working Paper No. 3884
PRELIMINARY

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.