BBSW & BBSY

The Bank Bill Swap Rate (BBSW) is a pivotal figure for fixed income investments. First, we define what an interest rate swap is.

Swap

Suppose entity B owes floating interest rate payments to entity A. Entity B can ‘give’ these variable payments to entity C, and pay entity C fixed interest payments. Essentially, entity B has swapped its’ floating interest rate payments (to entity A) with fixed interest payments (to entity C).

Swaps can have different durations, depending on the duration of the payments owed. The rate used for swaps longer than 6 months is the swap rate. If the duration is less than 6 months, the rate is called the BBSW.

How is BBSW calculated?

The rate is calculated directly from market transactions from certain high credit-quality banks during a certain window. The BBSW is then reported at 10:30am.

Why is the BBSW important?

Many fixed interest products (e.g. term deposits) are offered at a fixed margin above (or below) the BBSW. Thus, the price of these products depend on the BBSW.

BBSY

The Bank Bill Swap Bid Rate (BBSY) is a benchmark interest rate typically used by financial institutions or corporations engaging in interest rate swaps and related transactions. BBSY is not an independent benchmark for interest rates. It is a bid rate reference and is usually 5 basis points higher than BBSW.