Basis Point

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.