Bonds & rates
Convexity
How duration itself changes as yields move — the curvature in a bond’s price-yield relationship.
How it works
Duration is a straight-line approximation and is only accurate for small moves. Convexity captures the curve: bond prices rise more when yields fall than they fall when yields rise by the same amount.
Positive convexity is therefore a good property for a bondholder, and it is why duration alone understates gains and overstates losses on large rate moves.
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