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Finance Dictionary and Glossary of Investment Terms
In the bond market, the smallest measure used for quoting yields is a basis point. Each percentage point of yield in bonds equals 100basis 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%.
One hundredth of a percentage point (0.01%). Basis points are often used to measure changes in or differences between yields on fixed income securities, since these often change by very small amounts.
One one-hundredth of a percent. Thus, if a bond''s yield drops from 6.56 percent to 6.51 percent, it is said to have fallen by 5 basis points.