medium · Debt Capital Markets
Why is the price-yield relationship of a standard non-callable bond described as 'convex'?
- Convexity means that for a given change in yield, the price will always fall more than it will rise.
- The bond's price moves in a straight line relative to yield changes, making duration a perfect predictor of price.
- The term refers to the fact that yields can never fall below zero in a convex market structure.
- As yields fall, the bond's price increases at an accelerating rate; as yields rise, the price decreases at a decelerating rate.
Sign up free to see the explanation and track your rank →
More Debt Capital Markets practice
- In the context of Debt Capital Markets, what is a leverage-based margin ratchet?
- Which officer of a borrower is typically responsible for signing the compliance certificat
- Why is the Administrative Agent's role important for the margin ratchet?
- If a company has a leverage-based pricing grid and SOFR rises significantly while leverage
- What is meant by the 'bond floor' in the context of yield analysis?
- For a bond trading at a discount (below par), which yield measure is typically the same as
- What is a 'call schedule' for a corporate bond?
- If a bond's Yield to Worst is equal to its Yield to Maturity, what can we likely conclude