A basis point is one-hundredth of a percentage point (0.01%), the standard unit for quoting changes in interest rates, bond yields, credit spreads, and other small financial differentials. One hundred basis points equal one percentage point; the convention removes ambiguity between relative and absolute percentage moves.
How it works
1 bp = 0.01% = 0.0001 in decimal terms. The unit exists to disambiguate: saying a yield "rose 1%" is unclear (from 4.00% to 4.04%, or to 5.00%?), whereas "rose 100 bp" or "rose 1 bp" is exact. Rate desks, central-bank decisions, and spread products are all priced in bps.
Why it matters now
With policy rates and the curve in play through 2025-2026, the difference between a 25 bp and 50 bp move is the central market debate at every FOMC and ECB meeting; precise bp language is how the desk parses guidance and terminal-rate pricing.
Example
When the Fed cut its target range by 50 bp on 18 September 2024 — from 5.25-5.50% to 4.75-5.00% — the move was twice the conventional 25 bp increment, signalling front-loaded easing. A 10-year Treasury yield moving from 4.20% to 4.45% has risen 25 bp.
Frequently asked
- What is a basis point?
- A basis point
Glossary · 25bp / bp
A basis point (bp) is one-hundredth of a percentage point (0.01%); 25bp equals 0.25 percentage points, the conventional increment of a single central-bank rate move. Policymakers quote rate changes, yields, and spreads in basis points to avoid the ambiguity of percentage-of-a-percentage phrasing.
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- Why do traders use basis points instead of percentages?
- Basis points exist to disambiguate small rate changes that percentage language renders unclear. Saying a yield 'rose 1%' could mean from 4.00% to 4.04% or to 5.00%; saying it 'rose 100 bp' is exact. Rate desks, central-bank decisions, and spread products are all priced in bps precisely to avoid this confusion.
- How many basis points are in 1 percent?
- There are 100 basis points in one percentage point, because each basis point equals 0.01%. A 50 bp Fed move equals half a percentage point; a 25 bp increment, the conventional step, equals 0.25%. When the Fed cut 50 bp in September 2024, the target range fell from 5.25–5.50% to 4.75–5.00%.
- What is the difference between a basis point and a percentage point?
- A basis point is one-hundredth of a percentage point, so 100 bp equals 1 percentage point. The distinction matters because percentage points themselves describe absolute moves between two rates, while 'percent' can imply a relative change. Basis points give the finest standard granularity for the small differentials that dominate rates and credit markets.
- How do you convert basis points to a dollar amount on a position?
- Multiply the position's DV01 — its dollar value per basis point — by the number of basis points moved. DV01 captures sensitivity to a 1 bp yield change, so a 25 bp move on a position with $10,000 DV01 implies roughly $250,000 of P&L. Desks size carry and hedges directly in P&L-per-bp terms.