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 ?
By loan type, the total delinquency rate for conventional loans increased 15 basis points to 3.61 percent over the previous quarter.
The Board is expected to slash key rates by at least 25 basis points to help boost domestic growth.
The BSP reduced the level of deposits banks are required to keep with the central bank by 200 basis points for big and mid-sized banks and 100 basis points for small banks to free up P210 billion in additional liquidity into the financial system.
Nevertheless, GOP securities continue to remain attractive versus lending Lending Spread and Credit Spread on outstanding loans stand at -0.26 basis points and -2.04 basis points, respectively.
Accordingly, the credit spread (difference between PIB yield and lending rate) for July 2018 touched at negative 90 basis points (compared to negative 71 basis points in the prior month of June), the lowest in almost four years, as the buildup in PIB yields continues with suppressed increase in lending yields due to growing competition for borrowers, he said in the report.
The interest rate on households fixed-term deposits that have an initial maturity below or equal to 1 year has increased by 19 basis points on a monthly basis to reach 28 basis points during May 2018.
PNB has reduced its MCLR by 20-25 basis points, while Allahabad Bank has reduced its MCLR by five basis points.
* Vanguard New Jersey Long-Term Tax-Exempt Fund Investor (VNJTX) and Admiral (VNJUX) shares declined one and three basis points to 0.19% and 0.09%, respectively.
Gross margin for the segment expanded 16 basis points to 5.91%, while operating expenses decreased 9 basis points to 1.11 % of revenues.
Data through July 2016 reported a first mortgage default rate of 0.66 percent in July, up one basis point from the prior month.
Trepp said more than $600 million in loans were cured in April, which pushed delinquencies 12 basis points lower.
The comprehensive measure of changes dropped seven basis points between March and April--reaching 0.86%.