what is a basis point bps 
a basis point bps is used to indicate changes in interest rates of a financial instrument basis points are typically expressed with the abbreviations bp bps or bips one basis point is equal to 1 100th of 1 or 0 01 in decimal form one basis point appears as 0 0001 0 01 100 investopedia joules garciaunderstanding basis points bps the word basis in the term basis point comes from the base move between two percentages or the spread between two interest rates since the changes recorded are usually narrow and because small changes can have outsized outcomes the basis is a fraction of a percent the basis point is commonly used for calculating changes in interest rates equity indices and the yield of a fixed income security it is common for bonds and loans to be quoted in terms of basis points for example it could be said that the interest rate offered by your bank is 50 basis points higher than the secured overnight financing rate sofr a bond whose yield increases from 5 to 5 5 is said to increase by 50 basis points interest rates that have risen by 1 are said to have increased by 100 basis points if the federal reserve board raises the target interest rate by 25 basis points it means that rates have risen by 0 25 percentage points if rates were at 2 50 and the fed raised them by 25 basis points the new interest rate would be 2 75 if you start with a decimal and want the figure in percentage form multiply by 100 if you start with a percentage and want the figure in decimal form divide by 100 special considerationsby using basis points in the conversation traders and analysts remove some of the ambiguity or confusion that can arise when talking about percentage moves for example if a financial instrument is priced at a 10 rate of interest and the rate experiences a 10 increase it could conceivably mean that the financial instrument is now 11 0 10 x 1 0 10 or it could mean that it is now 20 10 10 20 the use of basis points in this case makes the meaning clear if the instrument is priced at a 10 rate of interest and experiences a 100 bp move up its rate would then be 11 if the instrument experiences a 1 000 bp move up it would be 20 price value of a basis pointthe price value of a basis point pvbp is a measure of the change in the absolute value of the price of a bond for a one basis point change in yield this may also be referred to as dv01 or the dollar value change for a one bp move it is another way to measure interest rate risk and is similar to duration which measures the percent change in a bond price given a 1 change in rates pvbp is just a special case of dollar duration instead of using a 100 basis point change the price value of a basis point simply uses a one basis point change it does not matter if there is an increase or decrease in rates because such a small move in rates will be about the same in either direction basis points and investmentsbasis points are also used when referring to the cost of mutual funds and exchange traded funds etfs for example a mutual fund s annual management expense ratio mer of 0 15 will be quoted as 15 bps 