The price-yield relationship for a typical bond is convex, opening

The price-yield relationship for a typical bond is convex, opening

The price-yield relationship for a typical bond is convex, opening upward as shown in Figure 22.2. Investment professionals often describe the price-yield relationship of mortgage pass-through securities (described in Chapter 20) as being “negatively convex”-that is, a graph of the relationship opens downward. What features of these securities could produce such a relationship?

The price-yield relationship for a typical bond is convex, opening