SWAP Rate

The Money Market is where the Benchmark Interest Rates are set each business day at 10:30am. The Money Market will factor in any anticipated movement in Reserve Bank set Official Cash Rates, sometimes up to three (3) months in advance.

The SWAP rate is the benchmark rate used to settle all SWAP, Forward Rate Agreement (FRA), Interest Rate Options for all inter-bank transactions and many corporate transactions. It is the Australian equivalent of the LIBOR (London Inter Bank Offer Rate) and SIBOR (Singapore Inter Bank Offer Rate): the interest rate that banks charge each other on inter bank loans.

The Australian Financial Markets Association calculates the SWAP Reference Rates daily and they are published daily on AAP Reuters, Telerate, and Bloomberg. The Australian Financial Review publishes daily the previous day’s SWAP Reference Rates.

There are two aspects to the SWAP Rate: BBSW, which is a mid-rate between the BBSY bid & offer rates:

a) BBSW

• At approximately 10:05am every business day, “buy” and “sell” bills are obtained from 13 banks for the standard maturities of 30, 60, 90, 120, 150 and 180 days.
• The Bank Bill SWAP Reference Rate (BBSW) for each maturity is then set by a process whereby the two highest and the two lowest quotes are removed and the remaining nine rates are then averaged to obtain one “mid rate” for each maturity.

b) BBSY

• The simple addition and subtraction of five basis points (0.05%) to the BBSW rate for each maturity results in the “bid” and “ask” prices or interest rates, respectively. 

A BBSY-bid rate is the price at which a bank will buy bills from the Financial Markets, and, a BBSY-ask rate is the price sells bills to the Financial Markets.

Most of the bank’s borrowing clients’ bill draw-downs are priced using the BBSY bid, ie; SWAP + 0.05%, as a base.
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