QUICK DEFINITION
Bond Convexity is a measure of how the sensitivity of a bond's price to yield changes itself changes as yields move.
WHY IT MATTERS
Why Bond Convexity matters in bond markets
Convexity improves estimates of large price moves and helps distinguish bonds with similar duration but different nonlinear risk.
MARKET CONTEXT
How to think about it
Bond investors use bond convexity as part of a wider framework that links prices, yields, cash flows, liquidity and risk. The concept should therefore be read together with its related terms rather than as an isolated definition.
Is Bond Convexity important for fixed-income investors?
← Back to the Bond Market Glossary Yes. Convexity improves estimates of large price moves and helps distinguish bonds with similar duration but different nonlinear risk.