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What is 20 basis points?

20 basis points are the same as 0.2 percentage points. If, for example, a bond yield dropped from 7.65% to 7.45%, you could say it fell 0.2 percentage points or 20 basis points. Basis points are a unit of measure used in finance to express percentage change.

Why are basis points important?

To avoid this confusion, you can say it has increased by 1000 BPS. Then we know that you mean the second scenario, that is the increment by points, not by a percentage of a percentage. In this way, basis points help to eliminate ambiguity when talking about rate changes.

What are basis points in the bond market?

In the bond market, basis points are used when referring to the yields that fixed-income instruments pay investors. For example, if a bond yield spikes from 7.45% to 7.65%, it is said to have risen 20 basis points. But consider the following statement: “The bond’s yield was 10% before rising 5%.”

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