Basis Points

What Are Basis Points?

A basis point (bps, pronounced "bips") is a unit of measurement equal to 1/100th of 1 percentage point:

1 bps = 0.01% = 0.0001

100 basis points = 1 percentage point. So if the Fed raises rates by 25bps, the policy rate rises by 0.25%.

Why Basis Points Exist

Rates and yields involve small percentage changes where clarity matters. Saying a yield rose "by 1%" is ambiguous — does it mean from 4% to 5% (one percentage point), or by 1% of 4% (from 4% to 4.04%)? Basis points eliminate the ambiguity entirely. "Up 100bps" means up exactly one percentage point, no interpretation required.

Common Rate Changes in Context

• 25bps: Standard Fed rate move — a "quarter point" hike or cut
• 50bps: A "double hike" or "half point" — signals urgency
• 75bps: The "super-size" hike, last deployed en masse in 2022 (most aggressive since the 1980s)
• 100bps: A full percentage point move — rare, signals extreme circumstances

Basis Points in Credit Markets

Credit spreads are always quoted in basis points:

• IG spreads at 90bps means investment-grade bonds yield 0.90% more than equivalent Treasuries
• HY spreads at 350bps means high-yield bonds yield 3.50% over Treasuries
• A 10bps widening in HY spreads is a meaningful deterioration in credit conditions

Dollar Value of a Basis Point (DV01)

In bond trading, the DV01 (Dollar Value of 01) measures the profit or loss from a 1bps move in yield for a given bond position. A 10-year Treasury with DV01 of $1,000 gains or loses $1,000 per basis point change in yield. DV01 scales with duration — longer bonds have higher DV01.