Low-coupon issues and negative convexity

[johntavv]

Reading 22, practice problem 19 answer says:
Low-coupon issues exhibit less negative convexity than high-coupon issues. That is, there will be greater price appreciation for low-coupon issues when rates decline.
Why do low-coupon issues exhibit less negative convexity than high-coupon issues?

 

[zulu007]

MBS - Think of it as a straight pass through here

Low-coupon MBS issues exhibit less negative convexity (remember, smaller incentive for people already on low rates to remortgage) than high-coupon issues. That is, there will be greater price appreciation for low-coupon issues when rates decline, because relatively (to high coupon) fewer people will refinance.

Given the anticipated decline in interest rates, the low-coupon issues will appreciate more.