A basis point (often denoted as bp or ‱; rarely, permyriad) is a unit relating to interest rates that is equal to 1/100th of a percentage point per annum (pa). It is frequently but not exclusively used to express differences in interest rates of less than 1% pa. It avoids the ambiguity between relative and absolute discussions about rates. For example, a "1% increase" from a 10% interest rate could refer to an increase either from 10% to 10.1% (relative), or from 10% to 11% (absolute).
It is common practice in the financial industry to use basis points to denote a rate change in a financial instrument, or the difference (spread) between two interest rates, including the yields of fixed-income securities.
Since certain loans and bonds may commonly be quoted in relation to some index or underlying security, they will often be quoted as a spread over (or under) the index. For example, a loan that bears interest of 0.50% per annum above LIBOR is said to be 50 basis points over LIBOR, which is commonly expressed as "L+50bps" or simply "L+50".
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