Why Fixed-Income Yield Changes Are Quoted in Basis Points
Summary
The exchange considers whether to regress changes in yield curve points as percentage changes or as absolute changes. The answers describe fixed-income practice: rates and their volatility are commonly expressed in yield terms, especially basis points. This supports using basis-point changes as the regression input, rather than scaling each change by the yield level.
The rationale offered is that quoting yield movements in basis points provides a consistent convention and avoids interpreting rate changes as percentages of potentially small or negative yields. One answer notes that some products, including Treasury futures options, may quote yield volatility in percentage terms, and that conversion is straightforward. The recommendation is a convention, not a claim that one unit changes profit or statistical validity; the exchange provides no regression data or formal comparison of model fit.
Key ideas
- Fixed-income rate changes are commonly stated in basis points.
- Regressing basis-point changes offers a standard way to represent yield curve movements.
- Percentage changes in yield can be awkward when yields are small or negative.
- Some products quote yield volatility in percentage terms, so conventions can vary by instrument.
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Full text
# Regressing changes in yield/yield curve # Regressing changes in yield/yield curve If I'm regressing changes in individual points along a yield curve and measures of changes in level/slope/curvature of that yield curve against the returns of some random variable then do I want to use % changes in yields or absolute changes in yields (eg yield change from 1% to 0.95% would be -0.05)? I am new to fixed income and my experience with volatility tells me that I should use absolute changes since it is already measured in %. For example, the R^2 is much higher when regressing 1-month vix futures changes in points against spx returns than % change against spx returns. However, since I'm new to fixed income I'm running myself in circles (because I don't know what I don't know). Thanks in advance for any help! ## Answer by demully (score 1) https://quant.stackexchange.com/a/61734 The convention in fixed income is for everything to be quoted in yield or basis-point terms, leaving it incumbent on the user to derive a correct price thus. Note that this convention is a convention, that is in no way profit-altering! As such, it simply seeks to minimise confusion in the face of complexity... which assumes that the tiny majority who are genuinely financially-literate feel the same, which they almost certainly don't ;-) DEM ## Answer by Edward Watson (score 0) https://quant.stackexchange.com/a/61126 most rates people speak in terms of basis points and basis point volatility, while some popular products still trade in yield vol (%yield for treasury futures options). Regardless it's an easy conversion between the two. I recommend doing your regressions in basis points. While it's a point of discussion, I'd argue that the fed doesn't work in % of yield and you shouldn't either.
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