What Is the Bank Bill Swap Bid Rate (BBSY)? 

The Bank Bill Swap Bid Rate (BBSY) is an Australian benchmark inter🐠est rate quoted and dispersed by the data provider Thompson Reuters Information Service. The BBSY is typically used by financial institutions or corporations engaging in interest rate swaps and related transactions.

Understanding BBSY

In Australia, the BBSY is the interest rate used in the financial markets for the pricing and valuation of Australian dollar securities and used by banks to borrow money and to determine short-term floating interest rates. The BBSY 🐼is Ltd, which operates Australia's primary national stock exchange and equity derivatives market.

The BBSY is published at 10:15 a.m. daily on Thomson Reuters and on Bloomberg LLP. The published rates are used by financial institutions nationally to calculat🌠e interest rates on financial contracts, making for a transpaജrent and efficient process in the country’s financial system.

The BBSY is used as the base rate for debt financing. It is similar to the 澳洲幸运5官方开奖结果体彩网:London Interbank Offer Rate (LIBOR). The BBSY is derived from the BBSW—澳洲幸运5官方开奖结果体彩网:Bank Bill Swap Rate—which is calculated as the a🐼verage of the national best bid and best offer ꧋(NBBO), rounded to four decimal places.

This average mid-price is made available by independent authorities using a transparent algorithm based on informat🐓ion from numerous financial institutions. The BBSY is calculated and provided in a similar manner, except instead of mid-price, the average bid-price i🌞s used.

Example of the BBSY

A good example of where the bank bill swap bid rate comes into play is in a 澳洲幸运5官方开奖结果体彩网:plain vanilla interest rate swap agreement. An interest rate swap is a contract entered into by two counterparties who agree to swap streams of interest payments with each other for a predetermined period of time. One party swaps 澳洲幸运5官方开奖结果体彩网:fixed-interest payments and receives floating interest payments tha🎶t are dependent on 🐟the movement of the BBSY.

In order to decide what interest rate is used to determine the payment amounts in the agreement, the BBSY is agreed upon at the inception of the agreement as the reference rate. The floating rate used in interest rate swaps is BBSY plus (or minus) a margin, e.g. BBSY + 35 basis points.

Consider two companies who enter into an interest rate swap in which company XYZ pays fixed payments to and receives floating payments from company ABC. The semi-annual fixed interest rate is 2%, and the floating rate is BBSY + 0.35% to be paid on a semi-annual basis. Payments are to be swapped on a 澳洲幸运5官方开奖结果体彩网:notional principal amount of $1 million. On the day the payment amount is calculated XYZ will pay🐬 ½ x 2% x $1 million = $10,000 to ABC. Assuming the BBSY is 1.90%, ABC will remit ½ x (1.90% + 0.35%) x $1 million 𓃲= $11,250 to XYZ.