Fixed income

Definition of basis points

Basis points are a unit of measure that is used, amongst others, to reflect percentage changes in financial instruments. Typically, it is used to represent changes in interest rates, yields and spreads.

Converting percentage changes to basis points

One basis point is defined as one-hundredth of a percentage point, which is 0.01%, and which equals 0.0001.

For example, if a bond yield declines from 7% to 6.75%, the yield has declined by 25 basis points.

If a commercial bank increases its mortgage rate from 4.5% to 5.5%, the rate has risen by 100 basis points.

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