SHORT ANSWER
The core idea
Negative convexity occurs when a bond's expected cash flows change in a way that limits price gains as yields fall or increases sensitivity in unfavorable directions.
THE MECHANISM
What is happening underneath
Callable bonds and mortgage-backed securities can exhibit negative convexity because lower rates increase the likelihood of early repayment.
MARKET INTERPRETATION
How investors should read it
This creates hedging behavior that can itself influence broader bond markets.
BONDSTATS TAKEAWAY
The same market move can carry different information depending on which maturity, issuer and risk premium is changing. Read the question together with the underlying concepts rather than treating one price move as a universal signal.
RELATED CONCEPTS
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