Basis PointBP
A basis point is one hundredth of a percentage point: 0.01%. So 100 basis points equal 1%. Traders use basis points to describe small changes in interest rates, yields, spreads and fees without confusion.
When a central bank raises rates "by 25 basis points", it means a quarter of a percentage point. Basis points exist because percentages get confusing: is a rise from 5% to 5.5% a 0.5% increase or a 10% increase? Basis points remove the ambiguity. This entry explains the unit, how to convert it and where it's used.
- Category
- Bonds and Interest Rates
- Reading time
- 3 min
- Also called
- Basis points, Bps, Bips
- Updated
Basis points in plain words
One basis point is 0.01%, and bond analysts measure price sensitivity to a one-basis-point change in yield.1
Basis point value shows how much a bond's price changes for each basis point move in its yield.1
Credit spreads between bonds are commonly quoted in basis points or percentage points.2
How to work with basis points, step by step
Percent to bps
Multiply by 100: 0.75% = 75 bps.
Bps to percent
Divide by 100: 40 bps = 0.40%.
Rate changes
5.00% → 5.25% is +25 bps. See Rate Hike and Rate Cut.
Spreads
Yield gaps between bonds. See Credit Spread.
Fees
Fund fees in bps. See Expense Ratio.
Dollar value
Basis point value of a bond position.
Worked examples
Example 1 — A rate hike
+25 bpsA central bank raises its rate from 4.50% to 4.75%.
| Change | 0.25 points = 25 bps |
Basis points describe rate moves precisely: 25 bps is a quarter-point. See Central Bank.
Example 2 — Basis point value
≈ −$17,000A bond position's price falls $850 when its yield rises 1 basis point.
| BPV | $850 per bp |
| If yield rises 20 bps | ≈ −$17,000 |
Basis point value measures how much a bond's price moves for each 0.01% change in yield.1
Example 3 — Fee difference
$700/yrFund A charges 15 bps, fund B 85 bps on $100,000.
| Fund A | $100,000 × 0.15% = $150 |
| Fund B | $100,000 × 0.85% = $850 |
| Difference | $700 a year |
Small-sounding basis-point gaps in fees become real money. See Expense Ratio.
Basis points vs percent
| Aspect | Basis points | Percent |
|---|---|---|
| 1 | 1 bp | 0.01% |
| 25 | 25 bps | 0.25% |
| 100 | 100 bps | 1% |
| Used for | Rates, spreads, fees | General figures |
Where basis points are used
Central bank decisions
Hikes and cuts. See Federal Open Market Committee.
Bond yields
Daily yield moves. See Yield to Maturity.
Credit spreads
Risk premiums. See High-Yield Bonds.
Fees and costs
Fund charges and trading costs.
Advantages and disadvantages
Advantages
- Removes percentage ambiguity.
- Precise for small changes.
- Universal in finance.
Disadvantages
- Unfamiliar to beginners.
- Can make big changes sound small.
- Easy to misconvert.
Going deeper
Read as far as you need. Each level builds on the one before it.
Why not percent?
Beginner
"Up 1%" could mean 5% → 6% or 5% → 5.05%. Saying "up 100 bps" means only the first.
Price sensitivity
Intermediate
Basis point value measures bond price volatility for a 0.01% change in yield, helping traders size and hedge.1 See Interest Rate.
Spreads
Advanced
High-yield spreads, often quoted in basis points, widen when investors demand more for credit risk.2 See Credit Spread.
Common mistakes
Confusing bps and percent change
A rise from 2% to 3% is 100 bps, not 1 bp.
Misplacing decimals
50 bps = 0.50%, not 5%.
Ignoring small fee gaps
They compound over decades.
Forgetting the sign
Spreads can tighten or widen.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- 1 basis point = 0.01%.
- 100 bps = 1%.
- Used for rates, yields, spreads and fees.
- Removes percentage confusion.
- Basis point value measures bond sensitivity.
Frequently asked questions
Why is it called a basis point?
How do you say bps?
Is a basis point the same as a pip?
Further learning
- Credit Spread
Quoted in basis points.
- Yield to Maturity
Bond yields in bps.
- Expense Ratio
Fees in bps.
- Rate Hike and Rate Cut
Policy moves in bps.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Corporate Finance Institute. Basis Point Value (opens in a new tab) Checked .
- Corporate Finance Institute. High-Yield Bond Spread (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.