How Bond Maturity and Yield Affect Convexity

Summary

The document raises a conceptual question about how bond maturity and yield relate to convexity. It presents two proposed statements: that longer maturity leads to higher convexity, and that lower yield leads to higher convexity. The author reasons that longer-maturity bonds are more sensitive to interest-rate changes and connects convexity to duration, while also pointing to yield in the denominator of a convexity formula.

No answer or derivation is included, so the document does not resolve whether either statement is generally correct. It offers no bond cash-flow assumptions, formula, examples, or evidence to test the claims. Convexity comparisons require a defined bond and pricing setup, so the question alone is insufficient to establish a universal rule. The material is useful as a prompt for studying fixed-income risk measures, but readers need additional explanation to draw conclusions about maturity or yield effects.

Key ideas

• The document asks whether longer maturity increases bond convexity.
• It also asks whether lower yield increases convexity.
• The author links maturity to interest-rate sensitivity and convexity to duration.
• The document provides no answer, formula, worked example, or evidence resolving the claims.
• Convexity comparisons require further assumptions about the bond and pricing setup.

Tags

# Influence of Maturity and Yield on Convexity


# Influence of Maturity and Yield on Convexity












I recently took a quiz in which one question asked me to choose one answer that is true regarding convexity. One of the answers said that a longer maturity leads to a higher convexity, another answer said that a lower yield leads to higher convexity.

I personally thought both are correct.

- For the first answer I came to the conclusion that bonds with a longer maturity are much more sensitive to changes in interest rates. Since convexity is the derivative of duration that should also apply for the former.

- For the second answer I looked at the formula of convexity and saw that the yield is in the denominator meaning that if yields fall, the whole term increases.

I d be happy if somebody could tell me what is wrong with my conclusion.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.