Price Value of a Basis Point (PVBP)

What is PVBP?

The Price Value of a Basis Point (PVBP) measures how much a bond’s price changes in dollars for a one basis-point (0.01%) change in yield. It is a direct way to quantify a bond’s sensitivity to small interest-rate moves. Common synonyms include Value of a Basis Point (VBP), Dollar Value of a Basis Point (DVBP), Basis Point Value (BPV), PV01, and DV01.

Important: one basis point = 0.01% (0.0001 in decimal form).

How PVBP works

• PVBP is the absolute dollar change in a bond’s price for a 1 bps change in yield.
• Dividing PVBP by the bond’s price gives the approximate percentage price change for a 1 bps move.
• Higher PVBP means greater price sensitivity to interest-rate changes.
• Factors that affect PVBP include the bond’s coupon rate, time to maturity, and credit quality.
• PVBP is based on a linear approximation (modified duration); for large yield moves, convexity adjustments may be needed.

Formula and calculation

PVBP ≈ Modified Duration × Dirty Price × 0.0001

Where:
– Modified Duration estimates the proportional price change for a unit change in yield.
– Dirty Price is the full bond price including accrued interest.
– 0.0001 converts one basis point to decimal form.

Calculation steps:
1. Obtain the bond’s modified duration and dirty price.
2. Multiply modified duration by dirty price.
3. Multiply the result by 0.0001 to get PVBP in dollars.

Example

Assume a bond with a dirty price (par) of $10,000 and PVBP of $13.55.

PVBP = Modified Duration × $10,000 × 0.0001
13.55 = Modified Duration × 1 → Modified Duration = 13.55

Interpretation:
– A 1% (100 bps) drop in yields ≈ 13.55% increase in bond price → $10,000 × 13.55% = $1,355.
– Alternatively, PVBP × 100 = $13.55 × 100 = $1,355 for a 100 bps change.

Related terms

• DV01 / PV01: Dollar value of a one basis-point change; equivalent concepts used interchangeably with PVBP in many contexts.
• PV01 tells you a bond’s price sensitivity to small interest-rate changes. A higher PV01 indicates greater exposure to rate moves.

How interest rates affect bond prices

• Bond prices and yields move inversely: when market interest rates rise, bond prices fall; when rates fall, prices rise.
• If prevailing rates exceed a bond’s yield, the bond trades at a discount; if rates are lower, it trades at a premium.

Limitations

• PVBP uses modified duration, a linear approximation. For larger yield changes, the curvature of the price-yield relationship (convexity) becomes material, and PVBP alone may misstate the true price change.

Key takeaways

• PVBP quantifies the dollar price change for a 1 bps move in yield.
• Use PVBP (or DV01/PV01) to compare interest-rate sensitivity across bonds and to estimate small price changes.
• For large yield moves, adjust estimates for convexity to improve accuracy.
• PVBP depends on modified duration and the dirty price; both vary with coupon, maturity, and accrued interest.