Bond Points and Basis Points
Bonds are quoted in the market in terms of their price and their yield to maturity. The market price for all bonds is quoted as a percentage of the bond’s par value. Percentages are expressed in terms of bond points. A bond point represents one hundredth, or one percent, of par. Ten bond points is 10% of par; five bond points is 5% of par.
Similarly, yield to maturity is expressed in terms of basis points. A basis point equals one hundredth of a percentage point, and it represents the smallest increment of change in a bond’s yield. One hundred basis points is 1%; 25 basis points is 0.25%. So when a bond’s yield to maturity increases from 4.25% to 4.79%, the bond yield is said to have increased by 54 basis points. Municipal securities are typically quoted in basis points, and it will be YTM that is quoted. Municipal bonds may also be quoted in bond points.
The price of a bon