Basispoint

A basis point, abbreviated as bp or bps, is a unit of measure used in finance to describe small changes in interest rates, bond yields, and other percentages. One basis point equals one hundredth of a percentage point: 1 bp = 0.01 percentage point = 0.0001 in decimal form. Consequently, 100 basis points equal 1 percentage point.

Basis points are used to express changes in rates or spreads with precision, avoiding ambiguity that can arise from using percentage points alone. For example, an increase from 3.50% to 3.75% is a change of 25 basis points. A move from 2.10% to 2.60% is 50 basis points.

Common contexts include central bank policy rate changes, where decisions are reported in basis points, and bond markets, where yields, credit spreads, and mortgage or loan pricing are quoted in basis points. Expense ratios and management fees for funds are also often stated in basis points.

Etymology and interpretation: the term originated to provide a precise, scale-free way to describe small adjustments and is not itself a percentage. It is important to distinguish basis points from percentage points or from absolute percentages when communicating financial changes. In practice, the basis point is a standard, widely understood unit in financial reporting and analysis.