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Investment Term for the Day - Bank Bill Swap Rate

Investment Term for the Day - Bank Bill Swap Rate

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The Bank Bill Swap Rate, or Bank Bill Swap Reference Rate, is a short-term interest rate used as a benchmark for the pricing of Australian dollar derivatives and securities—most notably, floating rate bonds.
The BBSW is an independent reference rate that's used for pricing securities. Fixed-income investors use BBSW since it's the benchmark to price floating-rate bonds and other securities.
There is a risk premium added to the BBSW to compensate for the risk of the securities, as compared with the risk-free rate, which is typically based on government bonds.
The BBSW is calculated and published by the Australian Securities Exchange (ASX), which maintains this rate. The bank bill swap rate is Australia's equivalent of the London Interbank Offered Rate (LIBOR) and is used as a reference rate in much the same way on an institutional level.

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