Positive convexity

Positive convexity

A property of option-free bonds that the price appreciation for a large downward change in interest rates will be greater (in absolute terms) than the price depreciation for the same downward change in interest rates.

Positive Convexity

The phenomenon that bond prices increase more in absolute terms more when interest rates go up than bond prices decrease when interest rates go down.
References in periodicals archive ?
The company's DUS MBS securities provide market participants with investment securities offering easily-modeled cash flows, call protection and positive convexity in defined maturities of 5-, 7- and 10-years.
By selecting non-callable securities, we ensure that our bonds have positive convexity and can maximize gains.
Many servicers' aggregate portfolios being modeled today are reflecting positive convexity (or a greater gain in value with a back-up in rates than a decrease in value for the same downward rate shock.
The proceeds from the sales of these securities were reinvested in a diversified mix of Federal Agency bullet debentures and commercial and residential mortgage-backed securities with higher yields, longer duration and positive convexity attributes.
The company's DUS MBS securities provide market participants with investment securities offering easily-modeled cash flows, superior call protection and positive convexity in defined maturities of 5-, 7- and 10-years.
They provide the positive duration and positive convexity needed to offset the negative duration and negative convexity of mortgage servicing, says Shaiman.
A security that has positive convexity rises at a greater pace than the corresponding change in interest rates.
POs are good hedging vehicles since their positive convexity offsets the negative convexity of mortgage servicing.
POs and super POs may also lack the required positive convexity needed to offset the negative convexity of mortgage servicing.
Assets with positive convexity tend to have more upside under a range of market conditions over time, and those with negative convexity have more downside.
This is why investment bankers turned to option technology to create and structure their hedges--options have convexity, and the right option can have a positive convexity of a servicing portfolio.