A basis point (bp, plural bps, pronounced "bip") equals 0.01%, or one hundredth of a percentage point. It is the standard unit of measure for interest rates, yield changes, and spreads in fixed-income markets.
The convention exists because rate changes are often small in absolute terms but significant in their market impact. Saying "the 10-year yield rose 5 basis points" is unambiguous, whereas "the yield rose 0.05 percent" could be confused with a 0.05 percentage point move or a 0.05% proportional move.
Common conversions:
1 bp = 0.01% = 0.0001 in decimal
100 bps = 1.00% = 0.01 in decimal
A yield of 4.25% = 425 bps
Basis points are used to express:
Yield changes: "10Y yields rose +12 bps today"
Spreads: "the 2s10s spread is +45 bps"
Auction tails: "the auction tailed by 0.8 bps"
Fee rates: "management fee is 15 bps"
The related risk metric DV01 measures the dollar value change of a bond position for a 1 basis point move in yield. For a $1 million 10-year Treasury position, a 1 bp move translates to roughly $820 in profit or loss.
DV01— The dollar value of a 1 basis point yield change for a bond position. Used to size hedges and compare interest rate exposure across different securities.
Duration— A measure of a bond's price sensitivity to interest rate changes, expressed in years. The primary risk metric for fixed-income portfolio construction and hedging.
Yield Curve— A line plotting Treasury yields across maturities from 1-month bills to 30-year bonds. The global benchmark for risk-free rates and the term structure of interest rates.