Basis points (bps) explained: the building block of rate moves

By Ken Chigbo, Founder, KenMacro. Published 2026-05-12.

What is basis points (bps)?

A basis point is one-hundredth of a percentage point, equal to 0.01 per cent in decimal terms or 0.0001 in fractional terms. The unit is the standard for quoting changes in interest rates, bond yields, credit spreads, and central-bank policy moves. The term is used because the alternative phrasing (per cent change in a per cent figure) creates ambiguity. A 2 per cent rate moving to 2.5 per cent is sometimes described as a 25 per cent rise (relative) and sometimes as a 50 basis-point rise (absolute); the basis-point phrasing is unambiguous. Markets quote bps for everything from intraday yield moves to FOMC rate hikes. A 25 bp move is the smallest standard FOMC rate increment in 2026.

How traders use basis points (bps)

Macro traders quote and trade rate moves in basis points exclusively. Typical move sizes for context: a 1 bp daily move in the 10-year Treasury yield is normal background noise; a 5 bp daily move is a meaningful single-session signal; a 10 bp daily move is a regime event. A 25 bp FOMC rate hike moves the dollar by roughly 0.5 to 1.0 per cent and the 2-year Treasury yield by 15 to 25 bps on the day. A 50 bp hike (rare, historically reserved for emergency action) typically moves the dollar 1.5 to 2.5 per cent. The KenMacro daily desk read quotes every rate-path move in bps, with named contextual benchmarks (the terminal rate priced, the spread between Fed funds and SOFR, the 2s10s curve) all tracked in bps. Yield-spread trades (the 2s10s, the 5s30s, the breakeven) are quoted in bps.

Common misconceptions about basis points

The first misconception is that 1 basis point equals 1 per cent. It does not; 1 basis point equals 0.01 per cent, and 100 basis points equals 1 per cent. The second is that basis points apply only to rates. The unit is used for credit spreads, dividend yields, bond yield spreads, and any quoted figure where absolute small changes need to be unambiguous. The third is that bps and pips are interchangeable. A pip is the smallest standard price increment in FX (typically the fourth decimal on majors or the second decimal on yen pairs), unrelated to the basis-point unit used for rates and yields.

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Frequently asked

How many basis points are in 1 per cent?

100 basis points equal 1 per cent. 1 basis point equals 0.01 per cent. 50 basis points equal 0.50 per cent. 25 basis points equal 0.25 per cent (the standard FOMC rate-hike increment). The unit is the standard for quoting interest rate, bond yield, credit spread, and central-bank policy moves.

What is a typical Fed rate hike in basis points?

The standard FOMC rate-hike increment is 25 basis points (0.25 per cent). Larger moves of 50 basis points and 75 basis points have occurred in the 2022 hiking cycle but are historically rare. A 25 bp move typically lifts the dollar by 0.5 to 1.0 per cent on the day and the 2-year Treasury yield by 15 to 25 bps.

Are basis points and pips the same?

Basis points and pips are not the same. A pip is the smallest standard price increment in FX, typically the fourth decimal on majors (so 0.0001 on EUR/USD) or the second decimal on yen pairs (0.01 on USD/JPY). A basis point is one-hundredth of a percentage point (0.01 per cent), used for rates and yields. The two units measure different things.

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