A basis point is .01 or 1/100 of 1 percent of yield, and often a basis point is referred to as a bp (MSRB, Glossary of Municipal Securities Terms, Third Edition, August 2013). The plural is normally written bps, which is the form you see on a quote like 25 bps.
The regulator’s glossary states the unit the same way, with the arithmetic worked through an example: one basis point is one one-hundredth (.01) of a percentage point, so eight percent is equal to 800 basis points (SEC, Investor.gov, Basis Point).
What Each Form Means
The two forms are not different units, they are the singular and the plural of the same one, so a quote of 1 bp and a quote of 25 bps are measuring on the same scale.
Each form is recorded by an institution that uses it. The municipal securities glossary states that often a basis point is referred to as a bp (MSRB, Glossary of Municipal Securities Terms, Third Edition, August 2013), and the abbreviations list at the front of an IMF financial stability assessment states bps for basis points (IMF, Euro Area Policies: Financial System Stability Assessment, Abbreviations).
Why the Unit Exists at All
Describing a rate move in percent is ambiguous, because a percent of a rate and a percentage point of a rate are different quantities and the same sentence can carry either reading. A basis point removes the ambiguity, because it is always an absolute slice of a percentage point and never a proportion of the rate being quoted.
That precision is the reason it took hold in fixed income. A basis point is the smallest measure used in quoting yields on bonds or notes, and if a yield increases from 3.00 percent to 3.01 percent the difference is referred to as a one basis point increase (MSRB, Glossary of Municipal Securities Terms, Third Edition, August 2013).
Where a US Firm Meets the Abbreviation
It arrives in client documents rather than in the ledger. Loan agreements quote a margin over an index in basis points, investment statements express fee loads and yield changes the same way, and lenders describe rate changes on client debt in bps in correspondence a firm has to read correctly during a close or an engagement.
The unit attaches to a rate, never to a dollar amount. A spread quoted in basis points is a rate difference, so it only becomes money once it is applied to a balance.
The practical risk is a transcription error rather than a conceptual one. A margin read as though it were quoted in percent when it was quoted in basis points moves an accrual by orders of magnitude, and that accrual feeds the interest expense on the return.
Common Questions
Both. bp is the abbreviation the municipal securities glossary records for a basis point, and bps is the form you see when the quote covers more than one.
Yes. A basis point is .01 or 1/100 of 1 percent of yield (MSRB, Glossary of Municipal Securities Terms, Third Edition, August 2013), so a move quoted as one percentage point and the same move quoted in basis points are the same size, written on two different scales.
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