Basis points (BPS) is the common term for 1/100th of 1 percent or 0.01%.  This unit might not seem worth naming, but in bond markets for example, this is the unit for measuring daily price movements and credit spreads – i.e. the interest rate premium charged to a company because it is a weaker credit risk than the Government.  You cannot read the financial press without tripping over basis points.

 

What are Basis Points?

A basis point (BPS) is equivalent to 1/100th of 1 percent or 0.01%. For instance, if an interest rate shifts from 5.00% to 5.25%, it has risen by 25 basis points.

 

Basis Point to Percentage Conversion

Translating between basis points and percentage is a direct process:

  • 1% = 100 basis points
  • 0.01% = 1 basis point

 

To morph basis points into percentage, just divide by 100:

  • 25 BPS = 25/100 = 0.25%
  • 50 BPS = 50/100 = 0.50%

 

To switch a percentage to basis points, multiply by 100:

  • 0.50% = 0.50 * 100 = 50 BPS
  • 1.25% = 1.25 * 100 = 125 BPS

 

Uses of Basis Points in Financial Markets

Basis points are the standard unit of measurement in lots of financial markets:

  • Pretty much anything to do with interest rates, bond yields, or lending rates. For example, if a bank elevates its prime rate from 4.50% to 4.75%, it increased rates by 25 BPS.
  • Denoting bid-ask spreads on bonds and other fixed-income securities. A bid-ask spread of 5 BPS suggests a highly liquid bond.
  • Enumerating fees for investment banking and other advisory services. As an illustration, a mergers & acquisitions advisor may charge around 100 BPS (1%) based on the transaction size, depending on the deal’s intricacies.
  • Gauging investment performance over specific durations. Investors might gauge returns against a benchmark in basis points, not just percentage points.
  • Drawing comparisons between yields or returns of varied financial assets. A corporate bond, for instance, might yield 50 BPS more than a Treasury of a similar maturity.

 

Former banker turned entrepreneur. I successfully restructured, purchased, managed and sold a private engineering group, Steel Line Ltd, through an LBO and was also an equity partner in Corporate Training Group which my partners and I successfully sold to the AIM listed ILX group in 2006. I established Capital City Training Limited in early 2010 with my business partner Greg. We acquired MS Consultants a few years ago (so I’m still doing a bit of M&A). I have had non-exec roles for a small and growing VA/recruitment business and a fast-growing beverage logistics company. I am also an active investor.

Capital City Training is a full service technical and management development training company focused on the banking, wealth management and broader financial services and accounting industries. Having said all that, in the last couple of years we’ve been branching out into training for non-financial companies – manufacturing, retail, tech, defense.. so old and new economy. We also provide consultancy around modelling and are currently working for a leading PPP/PFI advisory firm. We have delivered training in every continent of the world in 2024… except Antarctica. Perhaps in 2025?! Watch this space.

Capital’s dedicated faculty combine extensive line experience as corporate financiers, bankers, traders, portfolio managers and equity analysts together with over 60 years of experience in learning and development as both procurers and providers of tailored in-house training, eLearning and blended learning. Our faculty also includes experienced Management development training specialists allowing us to provide HR consultancy services, management development training and also innovative integrated management development & technical training events. Capital City’s faculty embody over 100 years of line experience across the fields of accounting, corporate finance, derivatives, credit, lending, investment, equity research transaction banking and origination.