BBSW

One of the key terms for Australian fixed income investors is the Bank Bill Swap Rate, or BBSW. BBSW is simply the short term swap rate. In Australia, BBSW is the term used for interest rate swaps of six months or less and anything longer dated than six months is simply referred to as a swap rate.

While BBSW has many uses, for fixed income investors its main relevance is as a benchmark upon which we can evaluate floating rate bonds or investments.

BBSW is a compilation and average of market rates supplied by domestic banks in regard to the specific maturities of bank bills and is the rate at which banks will lend to each other. It is calculated for various maturities, at 10am each business day, and compiled by Australian Financial Markets Association (AFMA), providing an independent and transparent reference rate for the pricing and revaluation of Australian dollar derivatives and securities.

The 90-day BBSW is often referred to as the reference rate for market interest rates and, in particular, is used as a benchmark interest rate for floating rate bonds and other floating rate financial instruments such as hybrids.