A basis point (often abbreviated as bp, often pronounced as "bip" or "beep") is one hundredth of 1 percentage point. The related term '' permyriad'' means one hundredth of 1 percent. Changes of interest rates are often stated in basis points. If an interest rate of 10% increased by 1 bp, it changed to 10.01%.

Definition

:1 basis point (bp) = (a difference of) 1‱ or 0.01% or 0.1‰ or 10⁻⁴ or or 0.0001. :10 bp = (a difference of) 0.1% or 1‰ or 10‱. :100 bp = (a difference of) 1% or 10‰ or 100‱. Basis points are used as a convenient

unit of measurement A unit of measurement is a definite magnitude of a quantity, defined and adopted by convention or by law, that is used as a standard for measurement of the same kind of quantity. Any other quantity of that kind can be expressed as a multi ...

in contexts where percentage differences of less than 1% are discussed. The most common example is

interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...

s, where differences in interest rates of less than 1% per year are usually meaningful to talk about. For example, a difference of 0.10 percentage points is equivalent to a change of 10 basis points (e.g., a 4.67% rate increases by 10 basis points to 4.77%). In other words, an increase of 100 basis points means a rise by 1 percentage point. Like percentage points, basis points avoid the ambiguity between relative and absolute discussions about interest rates by dealing only with the absolute change in numeric value of a rate. For example, if a report says there has been a "1% increase" from a 10% interest rate, this could refer to an increase either from 10% to 10.1% (relative, 1% of 10%), or from 10% to 11% (absolute, 1% plus 10%). However, if the report says there has been a "100 basis point increase" from a 10% interest rate, then the interest rate of 10% has increased by 1.00% (the absolute change) to an 11% rate. It is common practice in the financial industry to use basis points to denote a rate change in a financial instrument, or the difference (

spread Spread may refer to: Places * Spread, West Virginia Arts, entertainment, and media * ''Spread'' (film), a 2009 film. * ''$pread'', a quarterly magazine by and for sex workers * "Spread", a song by OutKast from their 2003 album ''Speakerboxxx/T ...

) between two interest rates, including the yields of fixed-income

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

. Since certain

loans In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that de ...

and bonds may commonly be quoted in relation to some index or underlying security, they will often be quoted as a spread over (or under) the index. For example, a loan that bears

interest In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distin ...

of 0.50% per annum above the

London Interbank Offered Rate The London Inter-Bank Offered Rate is an interest-rate average calculated from estimates submitted by the leading banks in London. Each bank estimates what it would be charged were it to borrow from other banks. The resulting average rate is u ...

(LIBOR) is said to be 50 basis points over LIBOR, which is commonly expressed as "L+50bps" or simply "L+50". The term "basis point" has its origins in trading the "basis" or the spread between two interest rates. Since the basis is usually small, these are quoted multiplied up by 10,000, and hence a "full point" movement in the "basis" is a basis point. Contrast with pips in FX forward markets. Expense ratios of

investment fund An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages in ...

s are often quoted in basis points.

Permyriad

A related concept is one part per ten thousand, . The same unit is also (rarely) called a permyriad, literally meaning "for (every) myriad (ten thousand)". If used interchangeably with basis point, the permyriad is potentially confusing because an increase of one basis point to a 10 basis point value is generally understood to mean an increase to 11 basis points; not an increase of one part in ten thousand, meaning an increase to 10.001 basis points. This is akin to the difference between percentage and percentage point.

Unicode

A permyriad is written with which looks like a

percent sign The percent sign (sometimes per cent sign in British English) is the symbol used to indicate a percentage, a number or ratio as a fraction of 100. Related signs include the permille (per thousand) sign and the permyriad (per ten thousand) ...

with three zeroes to the right of the slash. (It can be regarded as a stylized form of the four zeros in the

denominator A fraction (from la, fractus, "broken") represents a part of a whole or, more generally, any number of equal parts. When spoken in everyday English, a fraction describes how many parts of a certain size there are, for example, one-half, eight ...

of "", although it originates as a natural extension of the percent and permille signs.)

Related units

* Percentage point difference of 1 part in 100 * Percentage (%) 1 part in 100 * Per mille (‰) 1 part in 1,000 * Per cent mille (pcm) 1 part in 100,000 *

Parts per million In science and engineering, the parts-per notation is a set of pseudo-units to describe small values of miscellaneous dimensionless quantities, e.g. mole fraction or mass fraction. Since these fractions are quantity-per-quantity measures, th ...

(ppm) 1 part in 1,000,000

References

External links