basis point


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Basis point

In the bond market, the smallest measure used for quoting yields is a basis point. Each percentage point of yield in bonds equals 100 basis points. Basis points also are used for interest rates. An interest rate of 5% is 50 basis points higher than an interest rate of 4.5%. Sometimes referred to as BPS, BIPS, and pronounced "Bips"

Basis Point

A unit of percentage measure equal to 0.01%. Basis points are commonly used when discussing changes to interest rates, equity indices, and fixed-income securities. In the media, perhaps its most common use is in reporting a central bank's changes to prevailing interest rates. For example, a newspaper might report that the Federal Reserve cut interest rates 100 basis points when it means that prevailing rates have dropped from 1.5% to 0.5%.

basis point

A value equaling one one-hundredth of a percent ( 1/100 of 1%). Basis point is used to measure yield differences among bonds. For example, there is a 30 basis point difference between two bonds if one yields 10.3% and the other yields 10.6%.
Case Study On May 9, 2001, WorldCom, Inc., issued $11.9 billion of bonds in what at the time was the largest corporate debt issue in U.S. history. WorldCom's bond issue exceeded by $3.3 billion the previous largest issue, by Ford Motor Company two years earlier. Most of the proceeds from the WorldCom bond issue were to be used to pay down short-term debt, including $6 billion of commercial paper. The entire issue, which included maturities of 3 years, 10 years, and 30 years, was sold at an average interest cost of 7.6%. The 3-year bonds were sold to yield 6.566%, while the 10-year and 30-year bonds sold to yield 7.659% and 8.250%, respectively. The 30-year portion, maturing in May 2031, sold at a premium of 259 basis points, or 2.59 percentage points, above the 30-year Treasury yield of 5.66%. The 259 basis-point premium to long-term Treasuries indicated the substantial credit risk assumed by investors who purchased WorldCom bonds. The WorldCom issue took place during a painful period for telecom companies, and the firm's common stock price had declined by over 60% in the year prior to the debt issue. Intense competition caused the company's long distance operation to become a particular problem. The bonds were rated BBB+ by Standard & Poor's and A-3 by Moody's. Although the issue was a success, the firm's financial position continued to deteriorate, and a little more than a year later WorldCom was bankrupt.

Basis point.

Yields on bonds, notes, and other fixed-income investments fluctuate regularly, typically changing only a few hundredths of a percentage point.

These small variations are measured in basis points, or gradations of 0.01%, or one-hundredth of a percent, with 100 basis points equaling 1%. For example, when the yield on a bond changes from 6.72% to 6.65%, it has dropped 7 basis points.

Similarly, small changes in the interest rates charged for mortgages or other loans are reported in basis points, as are the fees you pay on various investment products, such as annuities and mutual funds. For example, if the average management fee is 1.4%, you might hear it expressed as 140 basis points.

Your percentage of ownership in certain kinds of investments may also be stated in basis points, and in this case each basis point equals 0.01% of the whole investment.

basis point

A unit of measure used in finance,it is 1/100 of 1 percent.Commercial lenders will typically quote rates as a certain number of basis points above an index, such as LIBOR (London InterBank Overnight Rate) or 10-year Treasury bonds.A fee of 50 basis points for a $3,000,000 loan is a fee of 50/100 of 1 percent,or 1/2 of 1 percent on $3,000,000,being $15,000.

References in periodicals archive ?
The non-seasonally adjusted delinquency rate increased 2 basis points to 9.
If you get a rate that's a number of basis points higher and it's for a big chunk of financing, that could affect an investment's ability to perform.
In a related action, the Board of Governors approved a 50 basis point reduction in the discount rate to 5 percent.
Vacancy in the third quarter fell by 20 basis points and, at 5.
08 percent--up 7 basis points from the first quarter and up 49 basis points from a year earlier on a non-seasonally adjusted basis.
Treasury and federal agency securities transferred via Fedwire each year, however (roughly $14 million in charges at the current 15 basis point fee versus $145 trillion of securities transfers in 1994), the incremental effect of any fees ultimately passed on to the securities market would be small.
84 percent of all loans outstanding in the first quarter of 2007--the most recent numbers available--on a seasonally adjusted basis, down 11 basis points from the fourth quarter of 2006 and up 43 basis points from one year ago.
95 percent of all loans outstanding in the fourth quarter of 2006--the most recent numbers available--on a seasonally adjusted basis, up 28 basis points from the third quarter and up 25 basis points from one year earlier.
The seasoned delinquency index, which omits transactions with less than one year of seasoning, dropped three basis points this month to 0.
The delinquency rate decreased 1 basis point for prime fixed loans, while the delinquency rate for subprime fixed loans increased 80 basis points.
98 percent at the end of the first quarter, a drop of 1 basis point from the fourth quarter of 2005, while the seasonally adjusted (SA) rate of loans entering the foreclosure process was 0.
The uptick, however, was minimal as Fitch's overall delinquency rate for April rose only one basis point to 0.