Key Features of Basis Points

A basis point measures the percentage change in the value of a financial instrument. It is equivalent to 0.01% or one hundredth of a percent. To convert a percentage into basis points, you multiply the percentage by 100. Conversely, to convert basis points into a percentage, you divide the number of basis points by 100.

Why Do Investors Use BPS?

Investors use basis points to indicate small, incremental changes in interest rates for financial securities. This method of reporting helps eliminate confusion, particularly when dealing with changes of less than one percent. By using basis points, investors can clearly report both absolute and relative interest rate changes. BPS is commonly applied to instruments like corporate bonds, treasury bonds, credit derivatives, and interest rate derivatives.