medium · Debt Capital Markets pricing-yields-curve
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 bond's price will always fall by more than it rises by.
- The term refers to the rule that nominal yields can never decline below the zero bound in a convex bond market.
- The bond's price moves in a perfectly straight line against yield, so duration alone fully predicts the price for any move.
- 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 pricing-yields-curve practice
- For a bond trading at a discount (below par), which yield measure is typically the same as
- If a bond's Yield to Worst is equal to its Yield to Maturity, what can we likely conclude
- If an issuer decides *not* to call a bond on the first call date even though it is economi
- If a bond's YTW is significantly lower than its YTM, the bond is likely trading at a:
- For a bond with several call dates at different prices, the Yield to Worst is:
- The concept of 'Pull to Par' describes the price convergence… — Which yield measure inhere
- If an investor buys a bond with a 5% coupon at a price of 102, how does the Yield to Matur
- A bond's yield to maturity (YTM) is 7%, but its current yiel… — What does this suggest abo