convexity
A Bond Convexity Primer
As the US Federal Reserve lays the verbal groundwork for an eventual real-world quantitative easing taper, bond prices are dropping at an accelerated rate. In order to understand the ramifications of a Federal Reserve taper on the prices of a bond or bond portfolio, what is needed is a bond convexity primer.
Convexity Hedging: What Is It, and Why Does It Matter?
Observant readers will have noted that various sell-side researchers and other market commentators have mentioned “convexity hedging” as something that could exacerbate a selloff in UST rates. Here I take a high-level look at what convexity hedging is and how it affects the UST market.