Suppose the market expects low future interest rate volatility, while you expect the opposite (high volatility). Would this be a good or a bad time for you to be purchasing bonds with high convexity?
No, this is not a good time to purchase bonds with high convexity. As bonds with high convexity are very sensitive to the interest rate changes in the economy. So, if i buy this bond, and according to my expectations if there exists high volatility in the market , then the price of these bonds will fall more if the intersest rate rise in compariosn to those bonds with a lower convexity . So, the bond holder may suffer a larger loss due to the high convexity feature in the bonds.
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