Positive Convexity: Bonds

[quiteawesome]

Straight and putable bonds have positive convexity - the increase in value is higher when rates fall compared to the decrease when rates rise.
Can someone elaborate more why this is so?

 

[SorcererMikey]

For putable bonds, the decrease in value is mitigated because the bond can be sold back to the issuer.
For straight bonds, this downside protection does not apply, but the shape of the yield curve compared to the straight tangent line will determine if the convexity is positive or otherwise.

 

[S2000magician]

SorcererMikey wrote:For straight bonds, this downside protection does not apply, but the shape of the price-yield curve compared to the straight tangent line will determine if the convexity is positive or otherwise.

FTFY

 

[SorcererMikey]

Gracias