Sunday, 17 July 2011

What is a basis point?


The cost of insuring Treasuries rose five basis points to 54.5 basis points, according to CMA prices for credit-default swaps.
Credit-default swaps' were the primary cause of the financial collapse in 2008.

A basis point is 1/100th of one percent (0.001%). Not a commonplace calculation and most accountants would not need to trouble with it in most transactions. But basis points are part of everyday conversation in Ireland, Greece, Portugal and now Italy. This is because the cost of insuring government debt is calculated to basis points as this recent example from the financial press shows:
 Italian five-year CDS was 69 basis points wider at 512 basis points, nearing its record of 521 basis points hit on Sept. 21, according to data-provider Markit.
A CDS is a credit default swop - a form of insurance of mind-bending complexity. You can see a short video explanation here.

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Wall Street Lingo: Thousands of Investment Terms Explained Simply

1 comment:

  1. Anyone out there who believes they were sold a Bank Swaps product should act, by seeking a legal advice to see if they can make a claim for compensation against the bank.

    ReplyDelete

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