1. What is PVBP (Price Value of a Basis Point)?

Definition: PVBP measures how much the price of a bond or fixed income security will change for a 1 basis point (0.01%) change in yield.

Purpose: It helps investors and traders understand interest rate risk and the price sensitivity of fixed income securities.

2. How Does the PVBP Calculator Work?

The calculator uses the formula:

Where:

• \( PVBP \) — Price value of a basis point (USD)
• \( \Delta P \) — Price change (USD)
• \( \Delta Y \) — Yield change (basis points)

Explanation: The price change is divided by the yield change to determine how much the price moves per basis point of yield change.

3. Importance of PVBP in Fixed Income

Details: PVBP is crucial for risk management, portfolio hedging, and understanding the interest rate sensitivity of bonds and other fixed income instruments.

4. Using the Calculator

Tips: Enter the observed price change in USD and the corresponding yield change in basis points. Yield change must be non-zero.

5. Frequently Asked Questions (FAQ)

Q1: What's a typical PVBP value?
A: PVBP varies by bond. For example, a 10-year Treasury might have a PVBP around $0.08 per $100 face value.

Q2: How does PVBP relate to duration?
A: PVBP is similar to dollar duration, but specifically measures price change per 1bp yield change.

Q3: Why use basis points instead of percentage?
A: Basis points provide more precision when discussing small yield changes common in fixed income markets.

Q4: Does PVBP change with yield levels?
A: Yes, PVBP typically increases as yields fall (convexity effect).

Q5: How is PVBP used in trading?
A: Traders use PVBP to hedge positions and calculate risk exposure to interest rate movements.