Trying to understand the relationship between yield curve and convexity:
Generally speaking, is it correct to say when one expects yield curve to rise, then one should sell convexity? If so, does selling convexity means reducing bond holdings, or selling the embedded options?
Convexity helps you when yields change. If you anticipate a yield change, you want to buy convexity, not sell it. If you anticipate no yield change, you want to sell convexity.
When referring to selling convexity, do you mean selling the bond itself or options attached to bonds ?
You can sell convexity by selling options (stand-alone options, not options attached to bonds), or by changing the bonds in your portfolio (e.g., sell a combination of 2-year and 30-year bonds and buy 10-years bonds, or sell 10-year fixed-rate bonds and buy 30-year MBSs).