What it means
Convexity measures how a bond's duration changes as yields change. Positive convexity means duration falls as yields rise (a good thing for the holder); negative convexity (e.g., MBS) means duration rises as yields rise.
Why it matters
Convexity is what makes bond returns asymmetric. High-convexity bonds gain more in rallies than they lose in selloffs of equal magnitude. It's a feature long-duration buyers pay for.
How to use it
Watch for negatively convex assets in your portfolio (MBS, callable bonds) - they look like bonds but behave like short-volatility positions in stress.
Take it further
Want a worked example or a deeper dive? Ask Rocky how this concept applies to your specific watchlist or trade idea.
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