Glossary / Markets

Basis point

A basis point is one hundredth of a percentage point, so one hundred basis points equals one percent, and it exists because saying a rate rose one percent is ambiguous between one percentage point and one percent of the rate.

A move from 4.70 percent to 4.74 percent is four basis points. It is not a four percent move and it is not a 0.04 percent move.

The abbreviation is bps, pronounced bips.

Where people get it wrong

Confusing a percentage point with a percent. A rate going from two percent to three percent rose one hundred basis points and also rose fifty percent, and those are very different sentences.

Related terms

Yield curve The yield curve plots the yields of government bonds against their maturities, showing what the market charges to lend for two years against ten or thirty, and its shape is read as a statement about growth, inflation and risk. Real yield Real yield is the return on a bond after inflation, observable directly in the market as the yield on an inflation protected government bond, and it is the hurdle every other asset has to beat to be worth owning.

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