Basis Points

A basis point (bp, pronounced “bip”) is one hundredth of a percentage point: 1bp = 0.01%, and 100bp = 1.00%. It is the universal unit of the rates market: yields, spreads, auction tails, rate hikes, and fees are all quoted in bips.

The convention exists to kill ambiguity. If a yield goes “up 1%” from 4.00%, does it mean 4.04% (a relative 1% move) or 5.00% (an absolute one)? Saying “up 100 basis points” can only mean 4.00% → 5.00%. In markets where a 3bp auction tail is a headline event, that precision is not optional.

• A standard Fed move is 25bp; an aggressive one is 50bp.
• Auction tails and stop-throughs are quoted in tenths of a bip (a “1.4bp tail”).
• Price impact scales with duration: for a 10-year note with duration near 8, a 1bp yield move shifts price about 0.08%.

Worked example: CPI surprises hot and the 2-year Treasury yield jumps from 3.96% to 4.09%. That is a 13bp move, large for a single data print. On a $100 million 2-year position with duration around 1.9, the mark-to-market hit is roughly 13 × 0.019% × $100m ≈ $247,000. Small unit, real money.