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Convexity measures the curvature of the price-yield relationship, computed from the second moment of the discounted cash flows. Positive convexity means prices rise more than duration predicts when yields fall and fall less when they rise.
Convexity
C = Σ t(t+1)·PV(CFₜ) / [Price·(1+y)²]
Figures are estimates for planning only. Market returns are not guaranteed, and rates, limits and tax rules change. This is not financial or tax advice — speak to a qualified adviser before acting.
Long-dated, low-coupon bonds — their cash flows are furthest away and most sensitive to discounting.
Positive convexity is. Mortgage-backed securities can show negative convexity because prepayments accelerate when rates fall.