Bank Bill Swap Rate (BBSW)

The Bank Bill Swap Rate (BBSW) is an interest rate benchmark used in the Australian financial markets. It is calculated as the average of the daily closing bid rates for three-month bank bills traded in the interbank market. The BBSW is used as a reference rate for a variety of financial products, including loans, bonds, and derivatives.

The BBSW is a floating rate, which means that it changes over time in response to changes in market conditions. The BBSW is typically higher than the cash rate, which is the interest rate set by the Reserve Bank of Australia (RBA). This is because the BBSW includes a risk premium, which is a compensation for the risk of lending to banks.

The BBSW is a widely used benchmark, and it is considered to be a reliable and accurate measure of the cost of borrowing in the Australian financial markets. However, the BBSW has been criticized in recent years for being too volatile and for not reflecting the true cost of borrowing.

In response to these criticisms, the RBA has introduced a new benchmark called the Australian Financial Markets Reference Rate (AFR). The AFR is based on the average of the daily closing bid rates for three-month AFMA bills traded in the interbank market. The AFR is intended to be a more stable and accurate measure of the cost of borrowing in the Australian financial markets.

The BBSW and the AFR are both important benchmarks for the Australian financial markets. However, it is important to understand the differences between the two benchmarks and to use the appropriate benchmark for the specific purpose at hand.