Negative convexity means the security loses more from a given increase in yield than it gains from a corresponding decrease in yield. In mortgage securities it is caused by the prepayment option. Mortgage securities can exhibit positive convexity, however, if the prepayment option is out-of-the-money (i.e., interest rates are higher than mortgage rates).
Due to negative convexity, a standard hedge against an increase in interest rates will likely result in a loss if rates decrease.
Is there anyone who knows what does “standard hedge against an increase in interest rates” mean? and why it will likely result in a loss if rates decrease.