Conclusions from treatment of Invesco Indexing Consultation on Proposed Clarifications to the Index Methodology Document for the Invesco SOFR Academy USD Across-the-Curve Credit Spread Index (AXI) and the Invesco SOFR Academy USD Financial Conditions Credit Spread Index (FXI)

Invesco Indexing’s consultation on the proposed Clarifications to the Index Methodology Document for the Invesco SOFR Academy USD Across-the-Curve Credit Spread Index (AXI) and the Invesco SOFR Academy USD Financial Conditions Credit Spread Index (FXI)

As previously announced Invesco Indexing initiated a consultation regarding a potential change to the Index Methodology Document. 

Across-the-Curve Credit Spread Index Changes
On Page 5, we propose to add the following formula to enhance clarity around the weightings of the long term and short term spread.

𝑆𝑝𝑑𝑆𝑇𝑡: Short-term component average spread; 𝑆𝑝𝑑𝐿𝑇𝑡: Long-term component average spread
𝑀𝑎t𝑆𝑇𝑡: Short-term component average maturity; 𝑀𝑎t𝐿𝑇𝑡: Long-term component average maturity
𝑉𝑜l𝑆𝑇𝑡: Short-term component total daily volume (USD); 𝑉𝑜l𝐿𝑇𝑡: Long-term component total daily volume (USD)

Page 8, we propose to change the following sentence to add the minimum trading volume.

The potential limitations of daily Index calculation include circumstances in which the underlying transaction constituents of the benchmark credit spreads are not available because there are insufficient participants, or because the exchange(s) / exchange equivalent(s) suffers an unexpected outage or closure, or Invesco Indexing is denied permission to use such data for determining the Index, or the universe of transaction volumes for each respective input data source decline below the minimum threshold. The minimum threshold for the long-term bond component obtained from the Financial Industry Regulatory Authority’s Trade Reporting and Compliance Engine is defined as 50% of the historical minimum notional dollar volume of the universe of financial instruments for the relevant daily input file. The minimum threshold for the short-term component obtained from Depository Trust & Clearing Corporation is defined as 50% of the historical minimum notional dollar volume of the universe of financial instruments for the relevant daily input file. In such circumstances an announcement will be made to notify clients, including whether the Index will not be published or delayed in publication.

On Page 9, we propose to add the following text in the event of long-term data outages.

In the unlikely event that the benchmark administrator determines that USD-AXI is unable to be calculated and or published on a permanent basis, USD-AXI shall fall back to USD-FXI minus the 5-year historical median of the difference between USD-FXI and USD-AXI of the unscaled index or the relevant tenor¹. A corresponding announcement will be made by the relevant benchmark administrator. 

In the unlikely event that the benchmark administrator determines that USD-FXI is unable to be calculated and / or published on a permanent basis, USD-FXI shall fall back to the 5-year historical median of USD-FXI of the unscaled index or the relevant tenor². A corresponding announcement will be made by the relevant benchmark administrator.
 

Financial Conditions Credit Spread Index Changes
On Page 5, we propose to add the following formula to enhance clarity around the weightings of the long term and short term spread.

𝑆𝑝𝑑𝑆𝑇𝑡: Short-term component average spread; 𝑆𝑝𝑑𝐿𝑇𝑡: Long-term component average spread
𝑀𝑎t𝑆𝑇𝑡: Short-term component average maturity; 𝑀𝑎t𝐿𝑇𝑡: Long-term component average maturity
𝑉𝑜l𝑆𝑇𝑡: Short-term component total daily volume (USD); 𝑉𝑜l𝐿𝑇𝑡: Long-term component total daily volume (USD)

Page 8, we propose to change the following sentence to add the minimum trading volume.

The potential limitations of daily Index calculation include circumstances in which the underlying transaction constituents of the benchmark credit spreads are not available because there are insufficient participants, or because the exchange(s) / exchange equivalent(s) suffers an unexpected outage or closure, or Invesco Indexing is denied permission to use such data for determining the Index, or the universe of transaction volumes for each respective input data source decline below the minimum threshold. The minimum threshold for the long-term bond component obtained from the Financial Industry Regulatory Authority’s Trade Reporting and Compliance Engine is defined as 50% of the historical minimum notional dollar volume of the universe of financial instruments for the relevant daily input file. The minimum threshold for the short-term component obtained from Depository Trust & Clearing Corporation is defined as 50% of the historical minimum notional dollar volume of the universe of financial instruments for the relevant daily input file. In such circumstances an announcement will be made to notify clients, including whether the Index will not be published or delayed in publication.

On Page 9, we propose to add the following text in the event of long-term data outages.

In the unlikely event that the benchmark administrator determines that USD-FXI is unable to be calculated and / or published on a permanent basis, USD-FXI shall fall back to the 5-year historical median of USD-FXI of the unscaled index or the relevant tenor³. A corresponding announcement will be made by the relevant benchmark administrator.

Invesco Indexing will implement all changes to the methodology documents, and they have been posted to the website.

For any questions, please reach out to a member of the client engagement team at IndexSupport@invesco.com.

1. As of 26 February 2024, the 5-year historical median of the difference between unscaled USD-FXI and unscaled USD-AXI was approximately 16.1333 basis points.
2. As of 26 February 2024, the 5-year historical median of unscaled USD-FXI was approximately 67.9588 basis points.
3. As of 26 February 2024, the 5-year historical median of unscaled USD-FXI was approximately 67.9588 basis points.