The difference in basis points (BPS) that exists between two positions or rates (yields) or premiums, etc. For example, the basis point differential reflects the difference between a 1-year premium and a 5-year premium on interest-earning assets.
The basis point differential reflects the additional risk premium or expected yield/ premium (expressed in a certain number of basis points) that investors require for investing or taking position in higher risk or longer term securities, instruments, etc.
